SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

Annual Report Pursuant to Section 13 or 15 (d) of ~~The Securities Exchange Act of 1934~~

~~For the~~The ~~calendar~~Securities ~~year~~Exchange ~~ended~~Act ~~December~~of ~~31, 2002 Commission file No. 2-95114~~1934

For the calendar year ended December 31, 2003 Commission file No. 2-95114

LOGAN COUNTY BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

West Virginia		55-0660015
(State or other jurisdiction of Incorporation or organization)		(I.R.S. Employer Identification No.)
P.O. Box 597 Logan, WV		25601
(Address of principal executive offices)		(Zip code)

Registrant’s Telephone Number, including area code: (304) 752-2080

Securities Registered Pursuant to Section 12(g) of The Act:

NONE

(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such ~~filing~~ filing requirements for the past 90 days. ý (X) Yes o( ) No.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date:

Class Outstanding at April 2514, ~~2003~~2004

Common Stock ($1.67 Par Value)		703,991 Shares
State the aggregate market value of the voting stock held by non-affiliates of the Registrant.
Aggregate market value of voting stock		Based on last trade price
$30,113,622		$42.00
Documents Incorporated by Reference
(None)

Common Stock ($1.67 Par Value)

703,991 Shares

State the aggregate market value of the voting stock held by non-affiliates of the Registrant.

Aggregate market value of voting stock	Based on last trade price

$29,567,622	$42.00

Documents Incorporated by Reference

(None)

LOGAN COUNTY BANCSHARES, INC.

FORM 10-K

INDEX

ITEM	1	–	Business
ITEM 1	-		Business	2
ITEM	2	–	Properties
ITEM 2	-		Properties	6
ITEM	3	–	Legal Proceedings
ITEM 3	-		Legal Proceedings	6
ITEM	4	–	Submission of Matters to a Vote of Security Holders
ITEM 4	-		Submission of Matters to a Vote of Security Holders	6
ITEM	5	–	Market for the Registrant’s Common Stock and Related And Related Security Holder Matters
ITEM 5	-		Market for the Registrant’s Common Stock and Related And Related Security Holder Matters	7
ITEM	6	–	Selected Financial Data
ITEM 6	-		Selected Financial Data	8
ITEM	7	–	Management’s Discussion and Analysis
ITEM 7	-		Management’s Discussion and Analysis	11
ITEM	8	–	Financial Statements and Supplemental Data
ITEM 8	-		Financial Statements and Supplemental Data
ITEM	9	–	Disagreements on Accounting and Financial Disclosures
ITEM 9	-		Disagreements on Accounting and Financial Disclosures	61
ITEM	10	–	Directors and Executive Officers of the Registrant
ITEM 10	-		Directors and Executive Officers of the Registrant	61
ITEM	11	–	Executive Compensation
ITEM 11	-		Executive Compensation	62
ITEM	12	–	Security Ownership of Certain Beneficial Owners and Management
ITEM 12	-		Security Ownership of Certain Beneficial Owners and Management	62
ITEM	13	–	Certain Relationships and Related Transactions
ITEM 13	-		Certain Relationships and Related Transactions	62
ITEM	14	–	Exhibits, Financial Statement Schedules and Reports on Form 8K
ITEM 14	-		Exhibits, Financial Statement Schedules and Reports on Form 8K	62
PROXY MATERIALS				64
SIGNATURES				68

2ITEM 1 - BUSINESS

ITEM 1 – BUSINESS

LOGAN COUNTY BANCSHARES, INC.

Logan County Bancshares, Inc. is a bank holding company, which was organized under the laws of the State of West Virginia in 1985. On May 17, 1985, the Corporation ~~acquired~~ acquired all the outstanding capital stock of Logan Bank & Trust Company (LB&T) and also all of the outstanding stock of Bank of Chapmanville (BC). Both of these subsidiaries are ~~banking~~ banking corporations organized under the laws of the State of West Virginia. On May 28, 1996, the subsidiary banks;, Logan Bank & Trust Company and Bank of Chapmanville entered into a merger ~~agreement~~ agreement whereby they would be merged into Logan Bank & Trust Company. The merger was completed after ~~proper~~ proper regulatory approval and was accounted for under the pooling of interest ~~method~~ method of accounting.

Logan Bank & Trust Company was organized in 1963, and still operates at its original location at the corner of Washington and Main Streets in Logan, West Virginia. The Company also has a separate drive-up facility and mini-bank also located on Main Street in Logan, and in early February 1996, opened a new full-service branch in the Man area. In November 1996, the bank acquired a branch facility from another financial institution located at Harts, West Virginia. The facility at Route 10 North, Harts, is operated as a full service branch of the bank. Logan Bank & Trust Company is a member of the Federal Reserve System and deposits are insured pursuant to the Federal Deposit Insurance Act.

Logan Bank & Trust Company provides a complete range of retail banking services to individuals and small and medium size businesses. Their services include checking, savings, NOW, certificates of deposit and money market deposit accounts, business loans, individual loans, mortgage loans, home equity loans, consumer loans for various other purposes, other consumer-oriented financial services including safety deposit box accounts, IRA accounts and night depository. The company also operates several automatic teller machines at three strategic locations in Logan County, which provide 24-hour working services to customers of Logan Bank & trust Company. The Company is a member of the Cirrus ATM network which has over 100 locations in West Virginia and more than 10,000 locations in 47 states.

Logan Bank & Trust Company provides depository lending and related financial services to commercial, retail, industrial, financial and governmental customers. The lending function includes short and ~~medium~~ medium-term loans, letters of credit, inventory and accounts receivable financing and real estate construction lending. The Company also offers a discount investment brokerage service through a sub-contract arrangement with a larger financial institution.

The Chapmanville Bank of LB&T Bank has one location situated on Railroad Avenue in Chapmanville, West Virginia. This facility also provides a complete range of retail banking services to individuals and small and medium sized businesses. These services include checking, savings, NOW, certificates of deposit and money market account deposits, business loans, individual loans, mortgage loans, home equity loans, consumer loans for various other purposes are provided as well. In addition, the Bank offers consumer oriented financial services such as IRA accounts, night depository, safety deposit boxes and other banking related services.

This facility also provides a complete range of retail banking services to individuals and small and medium sized businesses. These services include checking, savings, NOW, certificates of deposit and money market account deposits, business loans, individual loans, mortgage loans, home equity loans, consumer loans for various other purposes are provided as well. In addition, the Bank offers consumer oriented financial services such as IRA accounts, night depository, safety deposit boxes and other banking related services.2

3The branch also provides depository, lending and related financial services to commercial, retail, industrial, financial and governmental customers. The lending function includes short and medium-term loans, letters of credit, inventory and accounts receivable financing, and real estate construction lending, as do all the branches of Logan Bank & Trust Company.

The branch also provides depository, lending and related financial services to commercial, retail, industrial, financial and governmental customers. The lending function includes short and medium-term loans, letters of credit, inventory and accounts receivable financing, and real estate construction lending, as do all the branches of Logan Bank & trust Company.

INVESTMENT CONSIDERATIONS

An investment in the shares offered hereby involves certain risks. A subscription for shares should be made only after careful considerations set forth below and elsewhere in this Offering Circular, and should be undertaken only by persons who can afford an investment involving such risks.

MARKET FOR THE COMMON STOCK AND RELATED SECURITY HOLDER MATTERS

The shares of Logan county BancShares, Inc. are infrequently traded in the over-the-counter market and are not listed on the National Association of Security Dealers Automated Quotation System (NASDAQ) or on any exchange. Management is not aware of any security dealer, which makes a market in the stock; therefore, no active trading market should be deemed to exist.

The sales price for Logan County BancShares, Inc. stock is determined by negotiations between individual buyers and sellers. Although company keeps no records of sale prices paid for Company stock and has no direct knowledge of such prices, for purposes of presentation, Corporation’s management estimates the approximate market value ranges for ~~2002~~2003 and ~~2001~~2002 to be as follows:

	First Quarter		Second Quarter	~~Second Quarter~~	Third Quarter	~~Third~~Fourth Quarter		~~Fourth Quarter~~
Sale Price:
2002 Common Stock	$	42– $ 42		$	42– $ 42	$	42– $ 42	$	42– $ 42
2003 Common Stock	$42-$42		$42-$42		$42-$42	$42-$42
2001 Common Stock	$	42– $ 42		$	42– $ 42	$	42– $ 42	$	42– $ 42
2002 Common Stock	$42-$42		$42-$42		$42-$42	$42-$42
Per Share Dividends Declared:
2002 Common Stock	$	0.34		$	0.34	$	0.35	$	0.50
2003 Common Stock	$0.35		$0.35		$0.35	$0.51
2001 Common Stock	$	0.33		$	0.34	$	0.34	$	0.49
2002 Common Stock	$0.34		$0.34		$0.35	$0.50

COMPETITION

Vigorous competition exists in the market area of Logan County Bancshares, Inc. In addition to the three other banks located within the market area, the location is in a relatively close proximity to two population centers of the State. There is also competition for deposits and related financial services from non-bank institutions such as savings and loans, insurance companies and brokerage firms, all of which are active in the area. Those institutions, ~~as well~~ in addition to the finance companies, provide loans. Since the Bank Holding Company Act, passed by the West Virginia Legislature in 1982, local banks have been joining bank holding companies around the State. Of the five banks located in Logan County, only one is a unit bank. The other four are members of various multi-bank holding companies. Logan ~~county~~County BancShares, Inc. has been able to compete effectively within the county by having one institution located in the county seat (Logan Bank & Trust Company), and Branches located in the high-growth area of the county. Also, to stimulate growth, Logan ~~county~~ County BancShares, Inc. is the only bank holding company owned and controlled from within the county.

SUPERVISION AND REGULATION

The Corporation is a bank holding company within the meaning of the Bank Holding Company Act of 1956 (the Act) and is registered as such with the Board of Governors of the Federal Reserve System (the Reserve Board). As a bank holding company, the corporation is required to file with the Federal Reserve Board an annual report and such other information as may be required. The Federal Reserve Board may also make examinations of the corporation. In addition, the Federal Reserve Board has the authority (which it has not exercised) to regulate provisions of certain bank holding company debt.

The Act requires every bank holding company to obtain the prior approval of the Federal Reserve Board before acquiring substantially all the assets of or direct or indirect ownership or control of more than 5% of the voting shares of any bank, which is not already majority-owned. The Act also prohibits a bank holding company, with certain exceptions, from itself engaging in or acquiring direct or indirect control of more than 5% of the voting shares of any company engaged in non-banking activities. One of the principal exceptions to these prohibitions is for engaging or acquiring shares of a company engaged in activities found by the Federal Reserve Board by order or regulation to be so closely related to banking or managing banks as to be a proper incident thereto. The Act prohibits the acquisition by a bank holding company of more that 5% of the outstanding voting shares of a bank located outside the State in which the operations of its banking subsidiaries are principally conducted, unless such an acquisition is specifically authorized by statute of the State in which the bank acquired is located. The Act and regulations of the Federal Reserve Board also prohibit a bank holding company and its subsidiaries from engaging in certain tie-in arrangements in connection with any extension of credit or provision of any property or services.

Logan Bank & Trust Company is an insured bank, organized under the Banking Law of the State of West Virginia and is a member of the Federal Reserve System. Accordingly, their operations are subject to Federal and State laws applicable to commercial banks with trust powers and to regulation by the Commissioner of Banking and the West Virginia State Banking Commissioner, the Federal Reserve Board and the Federal Deposit Insurance Corporation. Among other restrictions, the West Virginia Banking laws state that banks organized hereunder may pay dividends only out of undivided profits. Under the Federal Reserve Act, the approval of the Federal Reserve Board is required for dividends declared by a state member bank which in any year exceeds the net profits of such bank for that year, as defined, combined with retained net profits for the two preceding years.

GOVERNMENT MONETARY POLICIES AND ECONOMIC CONTROLS

The earnings and growth of the banking industry and of Logan Bank & Trust Company is affected by the credit policies of monetary authorities including the Federal Reserve System. An important function of the Federal Reserve System is to regulate the national supply of bank credit in order to control recessionary and inflationary pressures. Among the instruments of monetary policy used by the Federal Reserve to implement these objectives are open market operations in the U. S. Government securities, changes in the discount rate on member bank borrowings, and changes in reserve requirements against member bank deposits. These means are used in varying combinations to influence overall growth of bank loans, investments and deposits and may also affect interest rates charged on loans or paid for deposits. The monetary policies of the Federal Reserve authorities have had a significant effect on the operating results of commercial banks in the past and are expected to continue to have such an effect in the future.

In view of changing conditions in the national economy and in the money markets, as well as the effect of actions by monetary and fiscal authorities, including the Federal Reserve system, no prediction can be made as to possible future changes in interest rates, deposit levels, loan demand of their effect on the business and earnings of the Corporation, and Logan Bank & Trust Company.

FOREIGN OPERATIONS

The corporation and subsidiary have no foreign operations.

EXECUTIVE OFFICERS

For information concerning the Executive Officers of the Corporation, please see Item 10.

ITEM 2 - – PROPERTIES

The principal offices of the corporation are shared with those of Logan Bank & Trust Company and are situated in Logan, West Virginia. This building, a two-story bank and office building, is owned by Logan Bank & ~~trust~~ Trust Company, as is a mini-bank and drive-up facility which is located near-by. In addition, a one-story office and bank building is located on Railroad Avenue in Chapmanville, West Virginia. During 1996 the Bank opened two other branch facilities in West Virginia. Both are one-story office and bank buildings located at Rt. 10, South Man, West Virginia and Rt. 10 North at Harts, West Virginia.

ITEM 3 - – LEGAL PROCEEDINGS

There are no legal actions or proceedings to which the Corporation, or its subsidiary is a party.

ITEM 4 – - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5 - – MARKET FOR THE REGISTRANT’S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS

The shares of Logan County BancShares, Inc are infrequently traded in the over-the-counter market and are not listed on the National Association of Security Dealers Automated Quotation System (NASDAQ) or on any exchange. Management is not aware of any security dealer, which makes a market in the stock; therefore, no active trading market should be deemed to exist.

The sales price for Logan County BancShares, Inc. stock is determined by negotiations between individual buyers and sellers. Although company keeps no records of sales prices paid for Company stock and has no direct knowledge of such prices, for purposes of presentations, Corporation’s management estimates the approximate market value ranges for ~~2002~~2003 and ~~2001~~2002 to be as follows:

	First Quarter		Second Quarter	~~Second Quarter~~	Third Quarter	~~Third~~Fourth Quarter		~~Fourth Quarter~~
Sales Price:
2002 Common Stock	$	42– $ 42		$	42– $ 42	$	42– $ 42	$	42– $ 42
2003 Common Stock	$42-$42		$42-$42		$42-$42	$42-$42
2001 Common Stock	$	42– $ 42		$	42– $ 42	$	42– $ 42	$	42– $ 42
2002 Common Stock	$42-$42		$42-$42		$42-$42	$42-$42
Per Share Dividends Declared:
2002 Common Stock	$	0.34		$	0.34	$	0.35	$	0.50
2003 Common Stock	$0.35		$0.35		$0.35	$0.51
2001 Common Stock	$	0.33		$	0.34	$	0.34	$	0.49
2002 Common Stock	$0.34		$0.34		$0.35	$0.50

ITEM 6 - – SELECTED FINANCIAL DATA

LOGAN BANCSHARES, INC. AND SUBSIDIARY

(In Thousands of Dollars)

YEAR ENDED DECEMBER 31:	~~2002~~2003			~~2001~~2002			~~2000~~2001			~~1999~~2000			~~1998~~1999
Total Interest Revenue	$	108,~~088~~766		$	1210,~~090~~088		$	1112,~~508~~090		$	1011,~~753~~508		$	910,~~964~~753
Total Interest Expense	2,~~764~~087			42,~~801~~764			4,~~828~~801			4,~~378~~828			4,~~260~~378
Net Interest Revenue	76,~~324~~679			7,~~289~~324			67,~~680~~289			6,~~375~~680			56,~~704~~375
Provision for Possible Loan Losses	534			700			100			22			90
Provision for Possible
Net Interest Revenue After Provision for Possible Loan Losses	6,790			6,589			6,580			6,353			5,614
Loan Losses	3			534			700			100			22
Other Operating Revenue	805			707			769			699			989
Net Interest Revenue After Provision for Possible Loan Losses	6,676			6,790			6,589			6,580			6,353
Other Operating Expense	(4,689		)	(4,631		)	(4,185		)	(3,897		)	(3,629		)
Other Operating Revenue	986			805			707			769			699
Income Before Income Taxes	2,906			2,665			3,164			3,155			2,974
Other Operating Expense	(4,728		)	(4,689		)	(4,631		)	(4,185		)	(3,897		)
Income Taxes	1,064			909			1,131			1,131			1,083
Income Before Income Taxes	2,934			2,906			2,665			3,164			3,155
Net Income	$	1,842		$	1,756		$	2,033		$	2,024		$	1,891
Income Taxes	1,033			1,064			909			1,131			1,131
Net Income	$	1,901		$	1,842		$	1,756		$	2,033		$	2,024
Per Common Share:
Net Income	$	~~257~~2.70		$	2.4557		$	2.8445		$	2.8384		$	2.6483
Cash Dividends Declared	$	1.5357		$	1.5053		$	1.4450		$	1.3444		$	1.1834
At December 31:
Total Loans	$	~~107~~101,~~933~~615		$	~~116~~107,~~907~~933		$	~~113~~116,~~641~~907		$	~~109~~113,~~571~~641		$	95109,~~139~~571
Total Assets	~~170~~175,~~041~~659			~~171~~170,~~599~~041			~~157~~171,~~480~~599			~~152~~157,~~746~~480			~~139~~152,~~278~~746
Total Deposits	~~156~~154,~~443~~152			~~152~~156,~~028~~443			~~138~~152,~~723~~028			~~127~~138,~~619~~723			~~124~~127,~~420~~619
Short-Term Debt	13,000			21,000			2,000			92,~~840~~000			09,840
Tota Shareholders’ Equity	17,193			16,800			16,014			14,444			14,060
Tota Shareholders' Equity	17,790			17,193			16,800			16,014			14,444
Selected Ratios:
Rate of Return on Average:
Total Assets	1.06		%	1.0306		%	1.3603		%	1.3936		%	1.4339		%
Shareholders’ Equity	10.37		%	10.36		%	13.35		%	13.84		%	13.99		%
Shareholders' Equity	10.24		%	10.37		%	10.36		%	13.35		%	13.84		%
Tier 1 Capital to Total Assets at Year End	910.5811		%	109.3158		%	10.2531		%	910.9225		%	109.0992		%
Average Total Shareholders’ Equity to Average Total Assets	10.25		%	9.95		%	10.15		%	10.05		%	10.22		%
Average Total Shareholders' Equity to Average Total Assets	10.25		%	10.25		%	9.95		%	10.15		%	10.05		%
Common Dividend Payout Ratio	5958.5615		%	6159.1256		%	5061.7912		%	4750.3579		%	4447.7035		%
Nonaccrual and Restructured Business Loans as a Percentage of Total Loans	01.1604		%	01.0958		%	0.1374		%	0.5137		%	0.5351		%

~~ITEM~~Logan 7County –BancShares, ~~Management’s~~Inc. ~~Discussion~~ and ~~Analysis~~ Subsidiary

~~Logan County BancShares, Inc. and Subsidiary~~ Management’s Discussion and Analysis of ~~Financial~~ ~~Condition and Results of Operations~~Financial

Condition and Results of Operations

INTRODUCTION

The Management’s Discussion and Analysis reviews and discusses the financial condition of Logan County BancShares, Inc. and Subsidiary. Included are (a) the results of operations for ~~2002~~2003 and ~~2001~~2002 and (b) discussion of liquidity including an asset and liability sensitivity analysis, and (c) an analysis of earnings, dividends, and capital. The discussion and analysis discloses ~~any~~ any material changes and any infrequent events and known trends as they relate to to liquidity, capital resources and results of operations. The information presented reflects the activities of the holding company and the subsidiary bank, Logan Bank & Trust Company.

To assist in understanding and evaluating major changes in Logan County BancShares, Inc.’s financial position and results of operations, this discussion emphasizes a comparison of the years ~~2002~~2003 to ~~2001~~2002, ~~2001~~2002 to ~~2000~~2001 and 2001 ~~2000~~ to ~~1999~~2000, and also presents five year information in instances where appropriate. This discussion should be read concurrently with the audited financial statements including notes to those statements.

The following definitions apply to terms used in this report:

AVERAGE BALANCE: All balances have been computed on the basis of monthly averages.

NET INTEREST INCOME: Interest and related fee income on earning assets, reduced by total interest paid on interest bearing deposits and borrowed funds. This net amount, when divided by average earning asset balances becomes net interest margin.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity is provided through short-term investments, payments on outstanding loans, and the ability to attract new deposits or borrow funds. At December 31, ~~2002~~2003 and ~~2001~~2002, the funds available within one year from investments and loans were $4751,~~465~~426,000. and ~~$37~~47,~~712~~465,000.

Logan County BancShares, Inc.’s subsidiary bank deposit mix ~~remained~~increased by ~~stable~~$3,709,000. in ~~2002~~2003 after ~~increasing~~a bysmall decrease in 2002. In the other years presented, deposits increased by $13,305,000. in 2001, and $11,104,000., in 2000~~, and $3,198,000~~. ~~in 1999.~~ These increases in the deposit mix ~~points out~~point out a marketing strategy that has attracted new customers to the Bank. Time deposits represented the major growth in the deposit mix. They ~~increased~~decreased byover ~~$5,392,000.,~~the ~~and~~last ~~$8,056,000.~~two ~~respectively~~years after reasonable increases in ~~2000~~the ~~and~~first ~~1999~~three years. ~~Demand~~ Demand deposits contributed to the growth in the deposit mix by increasing $2,015,000. in 2002, $6,164,000. in 2001 and $4,011,000. in 2000. Savings deposits showed increases of $75,~~517~~060,000. in ~~2001~~2002, $17,~~263~~517,000. in ~~2000~~2001, ~~and 1999 of~~ $1,~~207~~263,000. ~~after remaining stable over the past five years. These changes are predominantly due to the fluctuating interest rates by the Federal Reserve and movement of savings to time deposits by the consumer~~ in ~~order~~2000 toand ~~obtain~~remaining ~~a better~~stable.

These changes are predominantly due to the fluctuating interest rates by the Federal Reserve and movement of savings to time deposits by the consumer in order to obtain a better interest rate. At December 31, 2003 and 2002, 34.61% and 31.19%, of the total deposits were in demand deposits while 28.03% and 29.82% were in savings and 37.36% and 38.98% were in time deposits, respectively. The stable growth in deposits gives the Bank a firm deposit base to meet the lending demand and market fluctuations.

At December 31, 2001 and 2000, 32.19% and 30.84% of the total deposits were in demand deposits, while 26.18% and 23.27% were in savings and 41.16% and 45.88% were in time deposits respectively. The stable growth in deposits gives the Bank a firm deposit base to meet the lending demand and market fluctuations.

~~interest~~ITEM ~~rate. At December 31, 2002 and 2001, 31.19% and~~7 ~~32.19%,~~- ofManagement’s ~~the~~Discussion ~~total deposits were in demand deposits while 29.82%~~ and ~~26.18% were in savings and 38.98% and 41.63% were in time deposits, respectively. The stable growth in deposits gives the Bank a firm deposit base to meet the lending demand and market fluctuations.~~Analysis

~~These~~The ~~changes~~Management’s ~~are predominantly~~Discussion ~~due~~and toAnalysis ~~the~~reviews ~~fluctuating~~and ~~interest~~discusses ~~rates~~the financial bycondition ~~the~~of ~~Federal~~Logan ~~Reserve~~County BancShares, Inc. and ~~movement~~ ofSubsidiary. Included ~~savings~~are to(a) ~~time~~the ~~deposit~~results byof ~~the~~operations for ~~consumer~~2003 inand ~~order~~2002 toand ~~obtain~~(b) adiscussion ~~better interest~~of ~~rate. At~~liquidity ~~December~~including ~~31,~~an ~~2000~~asset and ~~1999,~~liability ~~30.83%~~sensitivity analysis, and ~~30.03%~~(c) ofan ~~the~~analysis ~~total~~of ~~deposits~~earnings, ~~were in demand deposits~~dividends, ~~while~~and 23capital.~~27%~~ The discussion and ~~24.31%~~analysis discloses ~~were~~any inmaterial ~~savings~~changes and ~~45.89%~~any ~~and~~infrequent ~~45.65%~~events ~~were~~and inknown ~~time~~trends ~~deposits~~as they ~~respectively~~relate to liquidity, capital resources and results of operations. The ~~stable~~information ~~growth~~presented inreflects the ~~deposits~~activities ~~gives~~of the ~~Bank~~holding acompany ~~firm~~and ~~deposit~~the ~~base~~subsidiary tobank, ~~meet~~Logan ~~the~~Bank ~~lending demand and~~& ~~market~~Trust ~~fluctuations~~Company.

To assist in understanding and evaluating major changes in Logan County BancShares, Inc.’s financial position and results of operations, this discussion emphasizes a comparison of the years 2003 to 2002, 2002 to 2001 and 2001 to 2000, and also presents five year information in instances where appropriate. This discussion should be read concurrently with the audited financial statements including notes to those statements.

The following definitions apply to terms used in this report:

AVERAGE BALANCE: All balances have been computed on the basis of monthly averages.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity is provided through short-term investments, payments on outstanding loans, and the ability to attract new deposits or borrow funds. At December 31, 2003 and 2002, the funds available within one year from investments and loans were $51,426,000. and 47,465,000.

Logan County BancShares, Inc.’s subsidiary bank deposit mix increased by $3,709,000. in 2003 after a small decrease in 2002. In the other years presented, deposits increased by $13,305,000 in 2001 and $11,104,000 in 2000. These increases in the deposit mix point out a marketing strategy that has attracted new customers to the Bank. Time deposits represented the major growth in the deposit mix. They decreased over the last two years after reasonable increases in the first three years. Demand deposits contributed to the growth in the deposit mix by increasing $2,015,000. in 2002, $6,164,000. in 2001 and $4,011,000. in 2000. Savings deposits showed increases of $5,060,000. in 2002, $7,517,000 in 2001, $1,263,000. in 2000 and remaining stable.

~~During~~These ~~2001,~~changes ~~2000~~are ~~and 1999,~~predominantly ~~banks~~due ~~have~~to ~~been~~the ~~faced~~fluctuating ~~with~~interest arates by ~~highly~~the ~~competitive~~Federal ~~atmosphere~~Reserve inand ~~the~~movement ~~sense~~ of ~~maintaining~~savings ato ~~continuity~~time ofdeposits ~~growth. Logan~~by ~~County~~the ~~BancShares,~~consumer in ~~Inc.~~order ~~has~~to ~~maintained~~obtain a ~~community~~better ~~bank~~interest ~~approach~~rate. ~~which~~At ~~enhances~~December ~~its~~31, ~~performance~~2003 ~~over~~and ~~those~~2002, ~~years~~34. ~~The~~61% ~~merger~~and of31.19%, ~~Bank~~ of ~~Chapmanville~~the ~~into~~total ~~Logan~~deposits were ~~Bank~~in &demand ~~Trust company~~deposits ~~enabled~~while ~~the~~28.03% ~~Company~~and to29.82% ~~operate~~were ~~more~~in ~~efficiently~~savings and ~~thereby~~37.36% ~~capture a~~and ~~sizeable~~38.98% ~~portion~~were ~~of the market for deposits~~ in ~~the~~time ~~fastest growing area of Logan county~~deposits, ~~West Virginia~~respectively. ~~Also, with~~ ~~the~~The ~~addition~~stable ofgrowth ~~the~~in ~~Man~~deposits ~~Branch~~gives ofthe ~~Logan~~ Bank &a ~~Trust~~firm ~~and~~deposit ~~Harts~~base ~~Bank~~to ofmeet ~~Logan~~the ~~Bank~~lending &demand ~~Trust in 1996,~~ and ~~the Fountain Place location in 1999, the Company has expanded its current~~ market~~. See~~ ~~Table I~~fluctuations. ~~for a five-year summary of financial data.~~

~~Capital planning is~~At ~~essentially~~December ~~the management process that allocates capital resources in a manner that generates the highest income~~31, ~~while~~2001 ~~maintaining~~and ~~sufficient liquidity~~2000, ~~at the~~32.19% ~~lowest~~and ~~degree~~30.84% of ~~risk attainable. Moreover, it is~~ the ~~philosophy~~total ofdeposits ~~Logan~~were ~~County BancShares, Inc. to~~in ~~nurture~~demand ~~that growth by planning for steady~~deposits, ~~long-range~~while ~~profits rather that the high-risk, high-exposure techniques~~26. ~~As noted~~18% inand ~~Table I~~23.27% ~~the~~were ~~ratio~~in ofsavings ~~net~~and ~~income to average assets was 1~~41.0316%, ~~1.36%~~ and 145.4388% were ~~for~~in ~~the~~time ~~years~~deposits ~~ended December 31, 2001, 2000 and 1999,~~ respectively. ~~Through the periods~~The ~~presented,~~stable ~~management~~growth ~~has~~in ~~allocated~~deposits ~~new~~gives ~~funds into~~ the ~~higher-yielding~~Bank ~~loans and~~a ~~holding~~firm ~~the~~deposit ~~investment~~base ~~securities~~to ~~nearly~~meet ~~constant. Although~~ the ~~improvement in the local~~ ~~economy~~lending ~~had been at a slow pace through the periods presented, overall loan~~ demand and ~~deposit~~market ~~growth show a marked increase due to marketing the community bank service approach~~fluctuations.

Table I. represents a summary of financial data for the previous five years.

~~TABLE~~During I2003, 2002 and 2001, banks have been faced with a highly competitive atmosphere in the sense of maintaining a continuity of growth. – Logan County BancShares, Inc. has maintained ~~SUMMARY~~a OFcommunity ~~FINANCIAL~~bank ~~DATA~~approach ~~FOR~~that ~~FIVE~~enhanced ~~YEARS~~its performance over those years. The merger of Bank of Chapmanville into Logan Bank & Trust Company enabled the Company to operate more efficiently and thereby capture a sizeable portion of the market for deposits in the fastest growing area of Logan County, West Virginia. See Table I. for a five-year summary of financial data.

~~(In~~Capital ~~thousands~~planning is essentially the management process that allocates capital resources in a manner which generates the highest income, while maintaining sufficient liquidity, at the lowest degree of risk attainable. Moreover, it is the philosophy of Logan ~~dollars)~~County BancShares, Inc. to nurture that growth by planning for steady, long-range profits rather that the high-risk, high-exposure techniques. As noted in Table I. the ratio of net income to average assets was 1.08%, 1.06% and 1.03% for the years ended December 31, 2003, 2002 and 2001, respectively. Through the periods presented, management has allocated new funds into the higher-yielding loans when the loan demand has been sufficient. Although the improvement in the local economy had been at a slow pace through the periods presented, overall loan demand has been stable. Deposit growth show a marked increase due to marketing the community bank service approach.

	2002			2001			2000			1999			1998
Year End Balances:
Total Assets	$	170,041		$	171,599		$	157,480		$	152,746		$	139,278
Total Earning Assets	160,608			160,413			147,539			139,600			130,454
TotalDeposits	150,443			152,028			138,728			127,619			124,420
Stockholders’ Equity	17,193			16,800			16,014			14,444			14,059
Income for theYear:
Total Interest Income	10,088			12,090			11,508			10,753			9,964
Total Interest Expnese	2,764			4,801			4,828			4,378			4,260
Net Interest Income	7,324			7,289			6,680			6,375			5,704
Provision for Loan Losses	534			700			100			22			90
Non-interest Income	805			707			769			699			989
Non-interest expense	5,753			5,540			5,316			5,028			4,712
Net Income	1,842			1,756			2,033			2,024			1,891
Per Share Data
Net Income	2.57			2.45			2.84			2.83			2.64
Stockholders’ Equity	23.73			23.43			22.34			20.14			19.61
Cash Dividends	1.53			1.50			1.44			1.34			1.18
Key Ratios
Net Income To:
Average Assets	1.06		%	1.03		%	1.36		%	1.39		%	1.43		%
Average Stockholders’ Equity	10.37		%	10.36		%	13.36		%	13.84		%	13.99		%
Average Stockholders’ Equity to Average Assets	10.25		%	9.95		%	10.15		%	10.05		%	10.22		%

Table I. represents a summary of financial data for the previous five years.

TABLE ~~II – RATE~~I. ~~ANALYSIS~~- SUMMARY OF ~~INTEREST~~FINANCIAL ~~EARNING~~DATA ~~ASSETS~~FOR FIVE ~~AND INTEREST BEARING LIABILITIES~~YEARS

(In ~~Thousands~~thousands of ~~Dollars~~ dollars)

	2002								2001								2000
	2003			2002			2001			2000			1999
	Average Balance			Income (Expense)			Average Yield		Average Balance			Income (Expense)			Average Yield		Average Balance		Income (Expense)		Average Yield
Year End Balances:
EARNING ASSETS:
Total Assets	$	175,659		$	170,041		$	171,599		$	157,480		$	152,746
Loans
Total Earning Assets	165,973			160,608			160,413			147,539			139,600
(Net of Reserves & Discounts:)
TotalDeposits	154,152			150,443			152,028			138,728			127,619
Commercial	$	44,680		$	3,103		6.94	%	$	46,696		$	4,209		9.01	%	$	43,232	$	3,955	9.15	%
Stockholders' Equity	17,790			17,193			16,800			16,014			14,444
Real Estate	53,180			4,262			8.01	%	52,514			4,376			8.33	%	52,215		4,302		8.24	%
Income for theYear:
Consumer	12,564			1,154			9.18	%	14,079			1,397			9.92	%	13,348		1,257		9.42	%
Total Interest Income	8,766			10,088			12,090			11,508			10,753
Total Net Loans	110,424			8,519			7.71	%	113,289			9,982			8.81	%	108,795		9,514		8.74	%
Total Interest Expnese	2,087			2,764			4,801			4,828			4,378
Investment Securities:
Net Interest Income	6,679			7,324			7,289			6,680			6,375
Taxable	0			0			0.00	%	0			0			0.00	%	0		0		0.00	%
Provision for Loan
Available for Sale	40,988			1,364			3.33	%	25,967			1,354			5.21	%	28,887		1,886		6.53	%
Losses	3			534			700			100			22
Total Investment Securities	40,988			1,364			3.33	%	25,967			1,354			5.21	%	28,887		1,886		6.53	%
Non-interest Income	986			805			707			769			699
Federal Funds sold and Securities Purchased Under Option to resale	13,106			206			1.57	%	20,540			754			3.67	%	1,728		108		6.25	%
Non-interest expense	5,762			5,753			5,540			5,316			5,028
Total Earnings Assets	$	164,518		$	10,089		6.13	%	$	159,796		$	12,090		7.57	%	$	139,410	$	11,508	8.25	%
Net Income	1,901			1,842			1,756			2,033			2,024
Interest Bearing Liabliities:
Per Share Data
Savings and Interest Bearing Demand	$	65,384		$	584		0.89	%	$	57,807		$	1,139		1.97	%	$	55,169	$	1,329	2.41	%
Net Income	2.70			2.57			2.45			2.84			2.83
Time Deposits	60,861			2,024			3.33	%	64,549			3,522			5.46	%	59,505		3,430		5.76	%
Stockholders’ Equity	25.27			23.73			23.43			22.34			20.14
Federal Funds Purchased	2,910			157			5.39	%	2,000			140			7.00	%	1,052		69		6.56	%
Cash Dividends	1.57			1.53			1.50			1.44			1.34
Total Interest Bearing Liabilities	$	129,155		$	2,765		2.14	%	$	124,356		$	4,801		3.86	%	$	115,726	$	4,828	4.17	%
Key Ratios
Net Income To:
Average Assets	1.06		%	1.06		%	1.03		%	1.36		%	1.39		%
Average Stockholders’ Equity	10.24		%	10.37		%	10.36		%	13.36		%	13.84		%
Average Stockholders’ Equity to Average Assets	10.25		%	10.25		%	9.95		%	10.15		%	10.05		%

TABLE ~~III.~~II ~~– VOLUME~~- RATE ANALYSIS OF ~~CHANGE IN~~ INTEREST ~~INCOME~~EARNING ASSETS AND INTEREST ~~EXPENSE~~BEARING LIABILITIES

(In Thousands of Dollars)

										2002 VS 2001									2001 VS 2000
	2003									2002								2001
	Interest			Income			Expense			Increase			(Decrease)			Due To			Increase			(Decrease)			Due To
	Average Balance				Income (Expense)			Average Yield		Average Balance			Income (Expense)			Average Yield		Average Balance			Income (Expense)			Average Yield
	2002			2001			2000			Volume			Change In Rate			Total			Volume			Change In Rate			Total
EARNING ASSETS:
INTEREST INCOME ON EARNING ASSETS:
Loans
LOANS:
(Net of Reserves & Discounts:)
Commercial	$	~~3,103~~	41,444	$	~~4,209~~$	2,665	$	~~3,955~~6.43	%	$	~~(140~~44,680	)	$	~~(966~~3,103	)	$6.94	~~(1,106~~%	)$	$46,696	~~317~~	$	$4,209	~~(63~~	)9.01	$%	~~254~~
Real Estate	451,~~262~~765			~~4,376~~	4,004		~~4,302~~	7.73	%	5453,180			~~(168~~4,262		)	~~(114~~8.01	%	)52,514	25		4,376	49		8.33	74%
Consumer	110,~~154~~665			~~1,397~~	910		~~1,257~~	8.53	%	~~(139~~12,564		)	~~(104~~1,154		)	~~(243~~9.18	%	)14,079	69		1,397	71		9.92	~~140~~%
Total Loans	8,519			9,982			9,514			(225		)	(1,238		)	(1,463		)	411			57			468
Total Net Loans	103,874				7,579			7.30	%	110,424			8,519			7.71	%	113,289			9,982			8.81	%
SECURITIES
Investment Securities:
Held to Mtturiey	0
Taxable	0				0			0.00	%	0			0			0.00	%	0			0			0.00	%
Taxable	0			0			0			0			0			0			0			0			0
Available for Sale	45,014				1,005			2.23	%	40,988			1,364			3.33	%	25,967			1,354			5.21	%
Available for sale	1,364			1,354			1,886			500			490			10			(190		)	(342		)	532
Total Investment Securities	45,014				1,005			2.23	%	40,988			1,364			3.33	%	25,967			1,354			5.21	%
TOTAL SECURITIES	1,364			1,354			1,886			500			490			10			(190		)	(342		)	532
Federal Funds sold and Securities Purchased Under Option to resale	17,472				182			1.04	%	13,106			206			1.57	%	20,540			754			3.67	%
FEDERAL FUNDS SOLD AND SECURITIES PURCHASED:
Total Earnings Assets	$	166,360			$	8,766		5.27	%	$	164,518		$	10,089		6.13	%	$	159,796		$	12,090		7.57	%
Under Agreement to Resale	206			754			108			(117		)	(431		)	(548		)	1,175			(529		)	646
Interest Bearing Liabliities:
TOTAL INTEREST INCOME ON EARNING ASSETS	10,089			12,090			11,508			158			(2,159		)	(2,001		)	1,396			(814		)	582
Savings and Interest Bearing Demand	$	67,047			$	315		0.47	%	$	65,384		$	584		0.89	%	$	57,807		$	1,139		1.97	%
INTEREST EXPENSE ON INTEREST BEARING LIABILITIES:
Time Deposits	58,224				1,672			2.87	%	60,861			2,024			3.33	%	64,549			3,522			5.46	%
Savings & Interest Bearing Demand Deposits	584			1,139			1,329			68			(623		)	(555		)	(63		)	(127		)	(190		)
Federal Funds Purchased	2,852				100			3.51	%	2,910			157			5.39	%	2,000			140			7.00	%
Time Deposits Repurchased	2,024			3,522			3,430			(123		)	(1,375		)	(1,498		)	290			(198		)	92
Total Interest Bearing Liabilities	$	128,123			$	2,087		1.63	%	$	129,155		$	2,765		2.14	%	$	124,356		$	4,801		3.86	%
Purchased	157			140			69			49			(32		)	17			62			9			71
TOTAL INTEREST EXPENSE ON INTEREST BEARING LIABILITIES	2,765			4,801			4,828			(6		)	(2,030		)	(2,036		)	289			(316		)	(27		)
NET INTEREST INCOME	$	7,324		$	7,289		$	6,680		$	164		$	(129	)	$	35		$	1,107		$	(498	)	$	609

TABLE III - VOLUME ANALYSIS OF CHANGE IN INTEREST INCOME AND INTEREST EXPENSE

(In Thousands of Dollars)

							2003 VS 2002									2002 VS 2001
	Interest 2003		Income 2002		Expense 2001		Increase Volume			(Decrease) Change In Rate			Due To Total			Increase Volume			(Decrease) Change In Rate			Due To Total
INTEREST INCOME ON
EARNING ASSETS:
LOANS:
Commercial	$	2,665	$	3,103	$	4,209	(312		)	(126		)	$	(438	)	$	(140	)	$	(966	)	$	(1,106	)
Real Estate	4,004		4,262		4,376		(113		)	(145		)	(258		)	54			(168		)	(114		)
Consumer	910		1,154		1,397		(174		)	(70		)	(244		)	(139		)	—104			(243		)

Total Loans	7,579		8,519		9,982		(599		)	(341		)	(940		)	(225		)	(1,238		)	(1,463		)

SECURITIES
Held to Maturity
Taxable	0		0		0		0			0			0			0			0			0
Available for sale	1,005		1,364		1,354		134			(493		)	(359		)	500			(490		)	10
TOTAL SECURITIES	1,005		1,364		1,354		134			(493		)	(359		)	500			(490		)	10

FEDERAL FUNDS SOLD AND SECURITIES PURCHASED:
Under Agreement to Resale	182		206		754		69			(93		)	(24		)	(117		)	(431		)	(548		)

TOTAL INTEREST INCOME ON EARNING ASSETS	8,766		10,089		12,090		(396		)	(927		)	(1,323		)	158			(2,159		)	(2,001		)

INTEREST EXPENSE ON INTEREST BEARING LIABILITIES:
Savings & Interest
Bearing Demand Deposits	315		584		1,139		148			(417		)	(269		)	68			(623		)	(555		)
Time Deposits	1,672		2,024		3,522		(88		)	(264		)	(352		)	(123		)	(1,375		)	(1,498		)
Repurchased - Purchased	100		157		140		(3		)	(54		)	(57		)	49			(32		)	17

TOTAL INTEREST EXPENSE ON
INTEREST BEARING LIABILITIES	2,087		2,765		4,801		57			(735		)	(678		)	(6		)	(2,030		)	(2,036		)

NET INTEREST INCOME	$	6,679	$	7,324	$	7,289	$	(453	)	$	(192	)	$	(645	)	$	164		$	(129	)	$	35

LOAN PORTFOLIO

The loan portfolio of Logan county BancShares, Inc. and Subsidiary continues to represent the largest component of earning assets. Loan activity has ~~continued~~remained tostable ~~increase~~ due to the Bank’s emphasis on lending; as shown on Table IV, the Bank has contributed substantially to liquidity by structuring the loan portfolio in such a manner as to have approximately 3039.9748% of the total loans due within one year.

TABLE IV ~~– REMAINING~~- REMAINING MATURITIES OF LOANS AT DECEMBER 31, ~~2002~~2003

(In Thousands of dollars)

Commercial, Financial and Agricultural

Real Estate Mortgages

Installments

Total

MATURITIES

Due Within OneYear

1918,~~029~~004

124,~~169~~907

21,~~234~~731

3324,~~432~~642

Due One to Five Years

1411,~~143~~567

1214,~~784~~150

5,~~718~~496

3231,~~645~~213

Due After Five Years

10,~~808~~555

2731,~~550~~974

3,~~498~~231

4145,~~856~~760

Total Loans

4340,~~980~~126

5251,~~503~~031

1110,~~450~~458

~~107~~101,~~933~~615

Due After One Year at Fixed Rate

2422,~~951~~122

4046,~~334~~124

9,~~216~~132

7477,~~501~~378

Due After One Year at Floating Rate

Total Loans Due After One Year

2422,~~951~~122

4046,~~334~~124

9,~~216~~132

7477,~~501~~378

LOAN LOSSES AND CREDIT RISKS

The allowance for loan losses is established by charging expenses at an amount that will maintain the allowance for loan losses at a level sufficient to provide for potential loan losses. Loan losses are charged directly to the allowance when they occur and recoveries are credited to the allowance. The amount of the provision is based on pase loan loss experience, management’s evaluation of the loan portfolio under current economic conditions, and such other factors as in management’s best judgment deserve current recognition in estimating loan losses. Tables V and VI represent a summary of loan loss experience for the years 2002, 2001, 2000, 1999, and 1998.

TABLE V – ANALYSIS OF ALLOWANCE FOR LOAN LOSSES

	Year Ended December 31
	2002			2001			2000			1999			1998
Amount of Loans Outstanding at End of Period	$	107,933		$	115,755		$	112,939		$	108,871		$	94,402
Monthly Average Amount of Loans	$	110,174		$	113,289		$	109,447		$	101,197		$	89,182
Balance of Allowance for Possible Loan Losses at Beginning of Period	$	1,153		$	702		$	700		$	701		$	673
Loans Charged Off:
Commercial	$	9		$	32		$	0		$	0		$	14
Real Estate	16			20			7			0			0
Consumer	73			205			99			29			51
Total Loans Charged Off	98			257			106			29			65
Recoveries of Loans Previously Charged Off:
Commercial	1			1			0			1			1
Real Estate	1			1			3			0			0
Consumer	28			6			5			4			2
Total Recoveries	30			8			8			5			3
Net Loans Charged Off:	68			249			98			24			62
Additions to Allowance:
Charged to Expense	534			700			100			23			90
Balance at End of Period	$	1,619		$	1,153		$	702		$	700		$	701
Ratio of Net Charge-Offs During Period to Average Loans	0.062		%	0.220		%	0.089		%	0.024		%	0.069		%

~~TABLE~~LOAN VILOSSES –AND ~~ALLOCATION~~CREDIT ~~OF ALLOWANCE FOR LOAN LOSSES~~RISKS

	December 31, 2002				December 31, 2001				December 31, 2000				December 31, 1999				December 31, 1998
	Allowance		% of Outstanding Loan Balance		Allowance		% of Outstanding Loan Balance		Allowance		% of Outstanding Loan Balance		Allowance		% of Outstanding Loan Balance		Allowance		% of Outstanding Loan Balance
Commercial	$	854	1.94	%	$	749	1.52	%	$	464	0.98	%	$	464	1.03	%	463		1.22	%
Real Estate	623		1.19	%	288		0.54	%	163		0.31	%	163		0.32	%	163		0.35	%
Consumer	142		1.24	%	116		0.83	%	75		5.50	%	73		5.50	%	75		0.67	%
Total	$	1,619	1.50	%	$	1,153	0.97	%	$	702	0.62	%	$	700	0.64	%	$	701	0.74	%

TABLE V - ANALYSIS OF ALLOWANCE FOR LOAN LOSSES

	Year Ended December 31
	2003			2002			2001			2000			1999
Amount of Loans Outstanding at End of Period	$	101,615		$	107,933		$	115,755		$	112,939		$	108,871

Monthly Average
Amount of Loans	$	103,873		$	110,174		$	113,289		$	109,447		$	101,197

Balance of Allowance for Possible Loan Losses at Beginning of Period	$	1,619		$	1,153		$	702		$	700		$	701

Loans Charged Off:
Commercial	$	0		$	9		$	32		$	0		$	0
Real Estate	35			16			20			7			0
Consumer	49			73			205			99			29

Total Loans Charged Off	84			98			257			106			29

Recoveries of Loans Previously Charged Off:
Commercial	0			1			1			0			1
Real Estate	5			1			1			3			0
Consumer	38			28			6			5			4

Total Recoveries	43			30			8			8			5

Net Loans Charged Off:	41			68			249			98			24

Additions to Allowance:
Charged to Expense	3			534			700			100			23

Balance at End of Period	$	1,581		$	1,619		$	1,153		$	702		$	700

Ratio of Net Charge-Offs
During Period to
Average Loans	0.039		%	0.062		%	0.220		%	0.089		%	0.024		%

TABLE VI - ALLOCATION OF ALLOWANCE FOR LOAN LOSSES

	December 31, 2003				December 31, 2002				December 31, 2001				December 31, 2000				December 31, 1999
	Allowance		% of Outstanding Loan Balance		Allowance		% of Outstanding Loan Balance		Allowance		% of Outstanding Loan Balance		Allowance		% of Outstanding Loan		Allowance		% of Outstanding Loan Balance
Commercial	$	854	2.13	%	$	854	1.94	%	$	749	1.52	%	$	464	0.98	%	$	464	1.03	%

Real Estate	596		1.17	%	623		1.19	%	288		0.54	%	163		0.31	%	163		0.32	%

Consumer	132		1.25	%	142		1.24	%	116		0.83	%	75		5.50	%	73		5.50	%

Total	$	1,582	1.55	%	$	1,619	1.50	%	$	1,153	0.97	%	$	702	0.62	%	$	700	0.64	%

CONSOLIDATED SUMMARY OF LOANS AND NON-PERFORMING ASSETS

Non-performing assets consist of (a) loans not accruing interest any longer due to doubts about future collectibility, (b) loans more than ninety days past due for the last principal or interest payment, and (c) other real estate owned by the Bank taken originally as loan collateral. Table VII. provides a five-year summary of the components involved in non-performing assets as of year end.

Loans are determined to be non-accruing when it has been determined that the ability of the bank to collect the unpaid balance of such loans is highly unlikely due to the financial position of the borrower and general economic conditions. The determination of such classification is made by bank management on a case-by-case basis for problem loans. Generally, a review of each loan ninety days or more past due is made monthly and such loans deemed uncollectible become classified as non-accrual.

Loans are determined to be ninety days delinquent when such a period of time has elapsed since the last payment of principal or interest was made. At such a time, consideration as to whether to classify the loan as non-accruing is made. However, until such classification is made, interest will continue to be accrued.

Other real estate consists of real property that the Bank originally took as collateral for loans but has since acquired title to when the borrowers defaulted and the Bank bid on the property in question at public auction.

TABLE VII. – - CONSOLIDATED SUMMARY OF LOANS AND NON-PERFORMING ASSETS

(In thousands of ~~dollars~~Dollars)

	Year Ended December 31,
	2002			2001		2000			1999		1998
	2003		2002		2001	2000		1999
Commercial Loans	$40,126	~~43,980~~	$43,980	$	$49,211	$47,526	~~47,526~~	$45,069	$	~~45,069~~	$	~~37,938~~
Real Estate Loans	5251,~~503~~031		52,503	~~53,719~~	53,719	52,597		51,163	~~51,163~~		~~46,088~~
Consumer Loans	1110,~~450~~458		11,450	~~13,978~~	13,978	13,518		13,339	~~13,339~~		~~11,114~~
Subtotal	~~107~~101,~~933~~615		107,933	~~116,908~~	116,908	113,641		109,571	~~109,571~~		~~95,140~~
Less: Unearned Income	0.		0.	0	0.	0.		0.	0		36
	107,933			116,908		113,641			109,571		95,104
	101,615		107,933		116,908	113,641		109,571
Subtotal
Less: Reserve for Loan Losses	1,~~619~~582		1,619	~~1,153~~	1,153	702		700	~~700~~		~~701~~
Net Loans	$100,033	~~106,314~~	$106,314	$	$115,755	$112,939	~~112,939~~	$108,871	$	~~108,871~~	$	~~94,403~~
Non-Performing Assets
Non-Performing Assets Non-Accruing Loans	$1,059		$1,706		$864	$426		$555
Non-Accruing Loans	$	1,706		$	864	$	426		$	555	$	509
Loans Past Due 90 Days	149		617		1,801	3,338		3,272
Loans Past Due 90 Days	617			1,801		3,338			3,272		3,310
Other Real Estate Owned	202		196		227	200		358
Other Real Estate Owned	196			227		200			358		94
Total Non-Performing Assets	$1,410		$2,519		$2,892	$3,964		$4,185
Total Non-Performing Assets	$	2,519		$	2,892	$	3,964		$	4,185	$	3,913

1920

SECURITIES

The securities portfolio of Logan County BancShares, Inc. is the second largest area of resource allocation. Investments provide liquidity and serve as a hedge off-setting the increased sensitivity of deposits caused by deregulation. The Company has been shifting the concentration of the portfolio from held to maturity securities into more flexible, higher-yielding available for sale investments.

Securities include those classified as held to maturity and available for sale~~. The~~, ~~change~~ in ~~securities in~~ 2002 and 2001 these amounted to approximately 30% of the ~~portfolio~~earning assets and represented allocation of funds due to lower loan demand.

All debt securities, that Logan County BancShares Subsidiary does not have the ability or management does not have the positive intent to hold to maturity, are classified as “securities available for sale” and are carried at market value.

TABLE VIII. – MATURITY DISTRIBUTION OF SECURITES AT DECEMBER 31, ~~2002~~2003

(In Thousands of Dollars)

December 31. 2001 Dollars in thousands	One Year or Less			Over One Year Through Five Years			Over Five Years Through Ten Years			Over Ten Years			Total			Market Value
December 31. 2003	One Year or Less			OneYear Through Five Years			Years Through Ten Years			Over Ten Years			Total			Market Value
Dollars in thousands
U.S. Government:
Available for Sale	$	09,001		$	~~3,972~~0		$	0		$	0		$	39,~~972~~001		$	49,~~075~~030
Held to maturity	0			0			0			0			0			0
U.S. Federal Agency/and Equities
Available for sale	1417,~~033~~773			2220,~~499~~737			0			~~263~~344			3638,~~795~~854			3738,~~230~~943
Held to maturity	0			0			0			0			0			0
Total Securities:
Available for sale	1426,~~033~~774			2620,~~471~~737			0			~~263~~344			4047,~~767~~855			047,973
Held to maturity	0			0			0			0			0			0
TOTAL	$	1426,~~033~~774		$	2620,~~471~~737		$	0		$	~~263~~344		$	4047,~~767~~855		$	4147,~~305~~973
	0						0
Percent of total	655.7895		%	4443.0733		%	0.00		%	0.0072		%	100.00		%	100.00		%
Weighted average yield	2.7309		%	31.3592		%	0.00		%	3.2530		%	32.3202		%	32.2802		%

** The weighted average yields are based on carrying value and effective yields are weighted for the scheduled maturity of each security.

OTHER INCOME

In 2002 and 2001, the bank adjusted to a slower growth pace and evaluated service fees on the various services rendered for customers. As a result, the service fees increased by $29,000 and other fees by $75,000 in 2002 compared to 2001. These fees decreased between 2001 and 2000.

Table IX – OTHER INCOME

(In Thousands of Dollars)

							Increase (Decrease)
							2002 Over 2001					2001 Over 2000
	2002		2001		2000		Amount			Percent		Amount			Percent
Service Fee	$	657	$	628	$	669	$	29		4.46	%	$	(41	)	-6.53	%
Other Fees	148		73		101		75			102.74	%	(28		)	-27.72	%
Securities:
Gain (Loss)	0		6		0		(6		)	-100.00	%	6			100.00	%
Total Other Income	$	805	$	707	$	770	$	98		13.86	%	$	(63	)	-8.91	%

OTHER INCOME

In 2003 and 2002, the bank adjusted to a slower growth pace and evaluated service fees on the various services rendered for customers. As a result, the service fees increased by $200,000 and other fees decreased by $20,000 in 2003 compared to 2002 and $29,000 and $75,000, respectively, in 2002 compared to 2001.

Table IX – OTHER INCOME
(In Thousands of Dollars)

							Increase (Decrease)
							2003 Over 2002					2002 Over 2001
	2003		2002		2001		Amount			Percent		Amount			Percent
Service Fee	$	857	$	657	$	628	$	200		30.44	%	$	29		-6.53	%

Other Fees	128		148		73		(20		)	-13.51	%	75			102.74	%

Securities:
Gain (Loss)	1		0		6		1			100.00	%	(6		)	-100.00	%

Total Other Income	$	986	$	805	$	707	$	181		22.48	%	$	98		-8.91	%

TABLE X – OTHER EXPENSES

(In Thousands of Dollars)

							2002 Over 2001					2001 Over 2000
							2003 Over 2002					2002 Over 2001
	2002		2001		2000		Amount			Percent		Amount			Percent
	2003		2002		2001		Amount			Percent		Amount			Percent
Salaries and Benefits	$	2,~~322~~377	$	2,~~217~~322	$	2,~~148~~217	$	~~105~~55		42.7437	%	$	69105		34.2174	%
Taxes	~~130~~110		85130		7085		45(20		)	52-15.9438	%	1545			2152.1494	%
Depreciation	~~273~~259		~~270~~273		~~273~~270		3(14		)	1-5.1213	%	3			1.1012	%
Repairs and Maintenance	~~230~~277		~~223~~230		~~179~~223		747			320.1443	%	447			243.5814	%
Fees Paid to Directors	8077		80		7980		0(3		)	0-3.0075	%	10			10.2700	%
Equipment Rental	4339		4143		41		2(4		)	4-9.8830	%	02			04.0088	%
FDIC & Fidelity Insurance	~~110~~107		~~113~~110		99113		(3		)	-2.6473	%	14(3		)	14-2.1464	%
Data Processing	~~533~~559		~~514~~533		~~475~~514		1926			34.6788	%	3919			83.2167	%
Bank Stationery	~~143~~146		~~163~~143		~~119~~163		~~(20~~3		)	~~-12~~2.2710	%	44(20		)	36-12.9727	%
Bank Operating Expenses	~~825~~777		~~925~~825		~~702~~925		(~~100~~48		)	-105.8182	%	~~223~~(100		)	31-10.1781	%
TOTAL	$	4,~~689~~728	$	4,~~631~~689	$	4,~~185~~631	$	5839		10.2583	%	$	~~446~~58		101.6525	%

2223

OTHER EXPENSES

During 2003 the other expenses increased by $39,000 and only .82% of the increase was in salaries and benefits and reflected normal increases in compensation. Most other areas were relatively stable as management continued to control operational cost.

In 2002 the other expenses grew by $58,000 or only 1.25% over 2001. This small increase was primarily in salaries, benefits and taxes all relating to normal increases in these areas. These were affected by decreases in operating expenses and bank supplies.

During 2001 the other expenses grew by $446,000 or 10.66% over 2000. The increase is directly related to the overall growth of the bank and its customer base. A large portion of the increase were, salaries and wages of $69,000., repair and maintenance of $44,000., data processing cost of $39,000, and stationery and supplies of $44,000. all due to increase customer activity. Bank operating expense increased by $223,000 due to donations of real estate to a non-profit group of $170,000.

In 2000 other expenses increased $288,000. Or 7.39% compared to 1999. This increase was due to overall growth in 2000 and the operations of the new facility at Fountain Place. The increase of salaries and benefits of $129,000., FDIC insurance of $21,000. And bank operating expenses of $55,000. Are all a direct effect of the increase customer base.

In 2001 and 2000 the changes in taxes were due to changes in property taxes. Depreciation expense increased throughout the period. This increase is attributable to the opening of two branch facilities at Man and Harts, West Virginia and the Fountain Place facility late 1999.

Repairs and maintenance, directors’ fees, equipment rental, and Bank stationery expenses vary from year to year based on the Company’s demand. These types of expenses are not directly related to the income function and, therefore, increase or decrease sporadically.

2324

EARNINGS AND DIVIDENDS

As demonstrated in Table XI., Logan County BancShares, Inc. strives to achieve a favorable dividend payout rate to the shareholders. In ~~2002~~ 2003 the trend of recent years continued. Net income per share grew by 45.908% and dividends to shareholders by 2.061%. The company maintained a strong capital position by increasing stockholders’ equity by 23.3447%~~. During~~ ~~2001~~and ~~the~~assets ~~company~~ grew by 3.1051%. During in2002 ~~terms of~~the ~~asset~~company ~~and~~increased stockholder’s equity ~~and increased~~ by 102.70340%, along with increases of 4.4490% in net income and 32.4400% increase in the dividend payout ratio. These positive indicators reflect the overall growth in size, service area and customer base.

TABLE XI. – THREE-YEAR SUMMARY OF EARNINGS AND DIVIDENDS

	Per Share						Percent Change Over Prior Years
	Dividend Payout		Net Income		Dividends		Net Income		Dividends		Total Assets		Equity
1999	47.35	%	$	2.83	$	1.34	7.17	%	13.56%		9.67	%	2.74	%
2000	50.79	%	$	2.84	$	1.44	0.44	%	7.46	%	3.10	%	10.70	%
2001	61.12	%	$	2.45	$	1.50	-13.73	%	4.17	%	8.96	%	4.91	%
2002	59.56	%	$	2.57	$	1.53	4.90	%	2.00	%	0.91	%	2.34	%
2003	58.15	%	$	2.45	$	1.57	5.08	%	2.61	%	3.51	%	3.47	%

2425

EARNING ASSETS

Table XII ~~represents~~ represents analysis of average earning assets and interest-bearing liabilities for the years ended December 31, ~~2002~~2003, ~~2001~~2002, and ~~2000~~2001.

In the period presented, average-earning assets grew by $41,~~722~~841,000 in ~~2002~~2003, $204,~~386~~722,000 in 2002 ~~2001,~~ and $220,~~578~~386,000 in ~~2000~~2001. This ~~growth~~ growth represented increases of 21.9512% in ~~2002~~2003, 142.6295% in ~~2001,~~2002 and 114.8862% in ~~2000~~ 2001. The loan portfolio is the major component of earning assets which declined by $6,551,000 in 2003, $2,865,000 in 2002 after growing by $4,494,000 or 4.13% in 2001 ~~and $6,880,000 or 6~~.~~65% in 2000.~~ The company also allocated to the investment portfolio a portion of the growth to maintain ~~liquidy~~liquidity and fund future loan requirements.

INTEREST BEARING LIABILITIES

Interest ~~bearing~~ bearing liabilities include interest bearing demand deposits, savings accounts, ~~time~~ time deposits and borrowed funds. These ~~are~~ are the prime sources of funds for Logan County BancShares, Inc. subsidiary to support earning assets. Total average interest bearing liabilities ~~increased~~decreased by $41,~~799~~032,000 in 203 or 30.8601% inafter increasing ~~2002,~~ $84,~~630~~799,000 or 73.~~46$~~86% in ~~2001,~~2002 and $38,~~612~~630,000 or 37.~~22%~~46$ in ~~2000~~2001. In all years the Company has maintained a stable net interest margin while experiencing growth in the underlying deposits. The Company has been able to match earning yields with costs of funds over the past three years to maintain a stable net interest margin.

TABLE XII – ANALYSIS OF EARNING ASSETS AND INTEREST BEARING LIABILITIES

(In Thousands of Dollars)

	Year Ended 12/31/02						Year Ended 12/31/01						Year Ended 12/13/00
	Average Balance		Interest		Yield/ Rate		Average Balance		Interest		Yield/ Rate		Average Balance			Interest		Yield/ Rate
ASSETS
EARNING ASSETS:
LOANS:
Commercial	$	44,680	$	3,103	6.94	%	$	46,696	$	4,209	9.01	%	$	43,232		$	3,955	9.15	%
Real Estate	53,180		4,262		8.01	%	52,514		4,376		8.33	%	52,215			4,302		8.24	%
Consumer	12,564		1,154		9.18	%	14,079		1,397		9.92	%	13,348			1,257		9.42	%
Total Loans	$	110,424	$	8,519	7.71	%	$	113,289	$	9,982	8.81	%	$	108,795		$	9,514	8.74	%
INVESTMENT SECURITIES
Held to Maturity	0		0		0.00	%	0		0		0.00	%	0			0		0.00	%
Available for Sale	40,988		1,364		3.32	%	25,967		1,354		5.21	%	28,887			1,886		6.53	%
Total Securities	40,988		1,364		3.32	%	25,967		1,354		5.21	%	28,887			1,886		6.53	%
FEDERAL FUNDS SOLD	13,106		206		1.57	%	20,540		754		3.67	%	1,728			108		6.25	%
TOTAL EARNING ASSETS	$	164,518	$	10,089	6.13	%	$	159,796	$	12,090	7.57	%	$	139,410		$	11,508	8.25	%
NON-EARNING ASSETS:
Cash and Due From Banks	5,187						5,027						4,467
Bank Premises	3,337						3,561						3,765
Other Assets	408						1,997						2,373
TOTAL NON-EARNING ASSETS	$	8,932					$	10,585					$	10,605
TOTAL ASSETS	$	173,450					$	170,381					$		150,015

TABLE XII – ANALYSIS OF EARNING ASSETS AND INTEREST BEARING LIABILITIES

(In Thousands of Dollars)

	Year Ended 12/31/02						Year Ended 12/31/01						Year Ended 12/13/00
	Year Ended 12/31/03						Year Ended 12/31/02						Year Ended 12/31/01
	Average Balance		Interest		Yield/ Rate		Average Balance		Interest		Yield/ Rate		Average Balance		Interest		Yield/ Rate
INTEREST BEARING LIABILITIES:
ASSETS
DDA	$	65,384	$	584	0.89	%	$	57,807	$	1,139	1.97	%	$	55,169	$	1,329	2.41	%
EARNING ASSETS:
Time Deposits	60,861		2,024		3.33	%	64,549		3,522		5.46	%	59,505		3,430		5.76	%
LOANS:
Federal Funds Purchased	2,910		157		5.39	%	2,000		140		7.00	%	1,052		69		6.56	%
Commercial	$	41,444	$	2,665	6.43	%	$	44,680	$	3,103	6.94	%	$	46,696	$	4,209	9.01	%
Total Interest Bearing Liabilities	$	129,155	$	2,765	2.14	%	$	124,356	$	4,801	3.86	%	$	115,726	$	4,828	4.17	%
Real Estate	51,764		4,004		7.74	%	53,180		4,262		8.01	%	52,514		4,376		8.33	%
NON-INTEREST BEARING LIABILITIES AND CAPITAL
Consumer	10,665		910		8.53	%	12,564		1,154		9.18	%	14,079		1,397		9.92	%
Demand Deposits	25,559						28,052						18,587
Total Loans	$	103,873	$	7,579	7.30	%	$	110,424	$	8,519	7.71	%	$	113,289	$	9,982	8.81	%
Accrued Expenses	966						1,023						470
INVESTMENT
Capital	17,770						16,950						15,232
SECURITIES
Total Non-Interest Bearing Liabilities and Capital	44,295						46,025						34,289
Held to Maturity	0		0		0.00	%	0		0		0.00	%	0		0		0.00	%
Total Liabilities and Stockholders’ Equity	$	173,450					$	170,381					$	150,015
Available for Sale	45,014		1,005		2.23	%	40,988		1,364		3.32	%	25,967		1,354		5.21	%
NET INTEREST MARGIN	$	164,518	$	7,324	4.45	%	$	159,796	$	7,289	4.56	%	$	134,410	$	6,680	4.97	%
Total Securities	45,014		1,005		2.23	%	40,988		1,364		3.32	%	25,967		1,354		5.21	%
FEDERAL FUNDS	17,472		182		1.04	%	13,106		206		1.57	%	20,540		754		3.67	%
SOLD TOTAL EARNING ASSETS	$	166,359	$	8,766	5.27	%	$	164,518	$	10,089	6.13	%	$	159,796	$	12,090	7.57	%
NON-EARNING
ASSETS:
Cash and Due From Banks	5,339						5,187						5,027
Bank Premises	3,145						3,337						3,561
Other Assets	300						408						1,997
TOTAL NON-EARNING ASSETS	$	8,784					$	8,932					$	10,585
TOTAL ASSETS	$	175,143					$	173,450					$	170,381

~~INTEREST~~TABLE ~~RATE~~XII ~~SENSITIVITY~~– ANALYSIS OF EARNING ASSETS AND INTEREST BEARING LIABILITIES

~~Asset~~(In ~~and~~Thousands liability management is responsible for the planning, implementation, and control process for determining asset mix and maturity features relative to liability maturities in such a way that net interest margin will be maximized. A major tool for such a process is gap management of ~~the Bank’s interest sensitive assets to interest sensitive liabilities.~~Dollars)

The negative gap position as presented in the following table for maturities of one year or less is offset by the substantial positive gap position for maturities greater that one year. The earnings of Logan County BancShares, Inc. are sufficient to withstand the short-term negative gap position. Should a large fluctuation occur, increasing the costs of funds, management would consider increasing service charges and non-interest fees which management determines the market would bear in order to negate increased rate costs. An additional response, at the option of management, would be liquidation of certain long-term investments, and conversion of those funds into short-term securities.

	Year Ended 12/31/03						Year Ended 12/31/02						Year Ended 12/31/01
	Average Balance		Interest		Yield/ Rate		Average Balance		Interest		Yield/ Rate		Average Balance		Interest		Yield/ Rate

INTEREST BEARING LIABILITIES:
DDA	$	67,047	$	315	0.47	%	$	65,384	$	584	0.89	%	$	57,807	$	1,139	1.97	%
Time Deposits	58,224		1,672		2.87	%	60,861		2,024		3.33	%	64,549		3,522		5.46	%
Repurchase Agreement	2,852		100		3.51	%	2,910		157		5.39	%	2,000		140		7.00	%

Total Interest Bearing Liabilities	$	128,123	$	2,087	1.63	%	$	129,155	$	2,765	2.14	%	$	124,356	$	4,801	3.86	%

NON-INTEREST BEARING LIABILITIES AND CAPITAL

Demand Deposits	28,166						25,559						28,052
Accrued Expenses	899						966						1,023
Capital	17,955						17,770						16,950

Total Non-Interest Bearing Liabilities and Capital	47,020						44,295						46,025

Total Liabilities and Stockholders’ Equity	$	175,143					$	173,450					$	170,381

NET INTEREST MARGIN	$	166,360	$	6,680	4.02	%	$	164,518	$	7,324	4.45	%	$	159,796	$	7,289	4.56	%

Bank management recognized the concentration of large certificates of deposit. The Bank’s policy of asset-liability management matches both rates and maturities so the Bank will not have a liquidity problem or allow income to be affected by a change in rates.28

~~All~~INTEREST ~~demand~~RATE ~~and~~SENSITIVITY savings deposits are considered highly volatile, although experience has shown these accounts to be stable regardless of economic cycles. Interest on savings and other transactional accounts have generally remained constant over periods of interest rate changes. Therefore, deposits and savings are classified as “over one year” to represent a more realistic rate sensitive gap.ANALYSIS

28Asset and liability management is responsible for the planning, implementation, and control process for determining asset mix and maturity features relative to liability maturities in such a way that net interest margin will be maximized. A major tool for such a process is gap management of the Bank’s interest sensitive assets to interest sensitive liabilities.

~~TABLE~~The ~~XIII~~negative gap –position as presented in the following table for maturities of one year or ~~INTEREST~~less ~~RATE~~is ~~SENSITIVITY~~offset ~~ANALYSIS~~by the substantial positive gap position for maturities greater that one year. The earnings of Logan County BancShares, Inc. are sufficient to withstand the short-term negative gap position. Should a large fluctuation occur, increasing the costs of funds, management would consider increasing service charges and non-interest fees which management determines the market would bear in order to negate increased rate costs. An additional response, at the option of management, would be liquidation of certain long-term investments, and conversion of those funds into short-term securities.

~~(In~~Bank management ~~Thousands~~recognized the concentration of large certificates of deposit. The Bank’s policy of asset-liability ~~dollars)~~management matches both rates and maturities so the Bank will not have a liquidity problem or allow income to be affected by a change in rates.

	0 - 90			91-180			181-365			Total One Year			Over One year			Total
Earning Assets
Loans	$	6,557		$	5,576		$	21,299		$	33,432		$	74,501		$	107,933
Investments	4,003			2,021			8,009			14,033			26,734			40,767
Fed. Funds Sold	11,370			0			0			11,370			0			11,370
Total Earning Assets	21,930			7,597			29,308			58,835			101,235			160,070
Interest Bearing Liabilities:
Demand Deposits	21,851			0			0			21,851			0			21,851
Savings	12,653			10,062			22,149			44,864			0			44,864
CD’s of $100,000 and Over	2,730			2,604			4,251			9,585			7,282			16,867
Other Time	5,413			6,338			11,093			22,844			13,537			36,381
Total Interest Bearing Liability	42,647			19,004			37,493			99,144			20,819			119,963
Interest Sensitivity Gap	$	(20,717	)	$	(11,407	)	$	(8,185	)	$	(40,309	)	$	80,416		$	40,107
Cumulative Gap	$	(20,717	)	$	32,124		$	(40,309	)	$	(40,309	)	$	40,107		$	40,107
Rate Sensitive Assets/Rate Sensitive Liabilities (Cumulative Percentage)	51.14		%	47.89		%	59.34		%	59.34		%	133.43		%	133.43		%

All demand and savings deposits are considered highly volatile, although experience has shown these accounts to be stable regardless of economic cycles. Interest on savings and other transactional accounts have generally remained constant over periods of interest rate changes. Therefore, deposits and savings are classified as “over one year” to represent a more realistic rate sensitive gap.

TABLE ~~XIV~~XIII ~~– AVERAGE~~— ~~BALANCE~~INTEREST ~~SHEET~~RATE SENSITIVITY ANALYSIS

(In Thousands of ~~Dollars~~ dollars)

	2002			2001			2000			1999			1998
	0 - 90			91 - 180			181 - 365			Total One Year			Over One year			Total
ASSETS:
Earning Assets
Cash & Due from Banks	$	5,187		$	5,027		$	4,467		$	4,400		$	4,168
Loans	$	6,557		$	5,576		$	21,299		$	33,432		$	74,501		$	107,933
Investment Securities:
Investments	13,591			6,607			6,607			26,805			21,168			47,973
Available for Sale	40,988			25,967			28,887			29,045			18,763
Fed. Funds Sold	11,370			0			0			11,370			0			11,370
Held to Maturity	0			0			0			1,080			3,245
Total Earning Assets	31,518			12,183			27,906			71,607			95,669			167,276
Total Investments	40,988			25,967			28,887			30,125			22,008
Interest Bearing Liabilities:
Federal Funds Sold	13,106			20,540			1,728			4,792			13,203
Demand Deposits	23,256			0			0			23,256			0			23,256
Loans
Savings	12,185			9,689			21,330			43,204			0			43,204
Real Estates	53,180			52,514			52,215			49,235			43,454
CD’s of $100,000 and Over	2,804			1,991			3,270			8,065			14,348			22,413
Installment	12,564			14,079			13,348			12,212			10,459
Other Time	6,834			6,707			6,341			19,882			15,300			35,182
Commercial & Other	44,680			46,696			43,884			40,468			36,041
Total Interest Bearing Liability	45,079			18,387			30,941			94,407			29,648			124,055
	110,424			113,289			109,447			101,915			89,954
Interest Sensitivity Gap	$	(13,561	)	$	(6,204	)	$	(3,035	)	$	(22,800	)	$	66,021		$	43,221
Less: Unearned Discount	0			0			0			0			65
Cumulative Gap	$	(13,561	)	$	(19,765	)	$	(22,800	)	$	(22,800	)	$	66,021		$	43,221
	110,424			113,289			109,447			101,915			89,889
Rate Sensitive Assets/Rate Sensitive Liabilities (Cumulative Percentage)	69.92		%	68.86		%	75.85		%	75.85		%	134.84		%	134.84		%
Allowance For Loan Losses	(1,250		)	(788		)	(652		)	(718		)	(707		)
Net Loans	109,174			112,501			108,795			101,197			89,182
Banking Premises	3,337			3,561			3,765			2,824			2,113
Accrued Interest and Other Assets	1,658			2,785			2,373			2,136			1,608
TOTAL ASSETS	$	173,450		$	170,381		$	150,015		$	145,474		$	132,282
LIABILITIES & STOCKHOLDERS’ EQUITY
Deposits:
Demand Deposits	$	48,419		$	48,524		$	40,135		$	39,585		$	35,332
Savings Deposits	42,524			37,335			33,621			31,413			30,054
Time Deposits	60,861			64,549			59,505			58,167			52,055
Total Deposits	151,804			150,408			133,261			129,165			117,441
Federal Funds Purchased	2,910			2,000			1,052			834			0
Other Liabilities	966			1,023			470			851			1,014
TOTAL LIABILITIES	155,680			153,431			134,783			130,850			118,455
STOCKHOLDERS’ EQUITY	17,770			16,950			15,232			15,624			13,827
TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY	$	173,450		$	170,381		$	150,015		$	146,474		$	132,282

~~ITEM~~TABLE XIV – 8AVERAGE ~~FINANCIAL~~BALANCE ~~STATEMENTS AND~~SHEET ~~SUPPLEMENTAL~~(In ~~DATA~~Thousands of Dollars)

Management’s Report on Financial Statements Report of Independent Certified Public Accountants Financial Statements: Logan County BancShares, Inc. and Subsidiary: Consolidated Statement of Condition as of December 31, 2002 and 2001 Consolidated Statement of Income as of December 31, 2002, 2001 and 2000 Consolidated Statement of Changes in Stockholders’ Equity for the Years Ended December 31, 2002, 2001 and 2000 Consolidated Statement of Cash Flows for the Years Ended December 31, 2002, 2001, and 2000 Notes to Consolidated Financial Statements

	2003			2002			2001			2000			1999
ASSETS:
Cash & Due from Banks	$	5,339		$	5,187		$	5,027		$	4,467		$	4,400

Investment Securities:
Available for Sale	45,014			40,988			25,967			28,887			29,045
Held to Maturity	0			0			0			0			1,080

Total Investments	45,014			40,988			25,967			28,887			30,125

Federal Funds Sold	17,472			13,106			20,540			1,728			4,792
Loans
Real Estates	51,764			53,180			52,514			52,215			49,235
Installment	10,665			12,564			14,079			13,348			12,212
Commercial & Other	41,444			44,680			46,696			43,884			40,468
	103,873			110,424			113,289			109,447			101,915
Less: Unearned Discount	0			0			0			0			0
	103,873			110,424			113,289			109,447			101,915
Allowance For Loan Losses	(1,582		)	(1,250		)	(788		)	(652		)	(718		)

Net Loans	102,291			109,174			112,501			108,795			101,197

Banking Premises	3,145			3,337			3,561			3,765			2,824
Accrued Interest and Other Assets	1,882			1,658			2,785			2,373			2,136
TOTAL ASSETS	$	175,143		$	173,450		$	170,381		$	150,015		$	145,474

LIABILITIES & STOCKHOLDERS’ EQUITY
Deposits:
Demand Deposits	$	51,897		$	48,419		$	48,524		$	40,135		$	39,585
Savings Deposits	43,316			42,524			37,335			33,621			31,413
Time Deposits	58,224			60,861			64,549			59,505			58,167

Total Deposits	153,437			151,804			150,408			133,261			129,165

Repurchase Agreement	2,852			2,910			2,000			1,052			834
Other Liabilities	899			966			1,023			470			851

TOTAL LIABILITIES	157,188			155,680			153,431			134,783			130,850

STOCKHOLDERS’ EQUITY	17,955			17,770			16,950			15,232			15,624

TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY	$	175,143		$	173,450		$	170,381		$	150,015		$	146,474

To Our Shareholders, ~~Customers~~ Customers and Friends:

We are proud to present the 2003 ~~2002~~ annual report of Logan County BancShares, Inc. and its Subsidiary, ~~Logan~~ Logan Bank and Trust Company. ~~Even though~~2003 ~~2002~~ saw the economy ~~continuing~~begin ~~its~~a ~~downturn,~~slow upturn and we were positioned to show a continued earnings growth. Net income for ~~2002~~2003 was $1,~~841~~901,~~832~~023 compared to $1,~~755~~841,~~621~~832. for ~~2001~~2002. Earnings per common share totaled $2.5762 in ~~2002~~ 2003 versus $2.4557 in ~~2001~~ 2002. This growth was largely from cost containment and proper asset liability management. ~~All of this in a year when loan demand was slower due to economic conditions, and low interest rates causing a squeeze on the net interest margins.~~ The return on average assets of 1.0608% and return on equity of 10.3724% are excellent returns of capital in today’s financial markets.

~~2002~~This ~~presented~~year ~~our~~has ~~team with~~been ~~some challenges not seen in decades. We were faced with~~ a ~~continuingly~~year ~~weakened economy in the country in~~of ~~general and in southern West Virginia in particular~~celebration. ~~However,~~This marks our ~~commitment~~40TH continuous toyear ~~the~~of ~~area~~business ~~did~~in ~~not~~Logan; ~~waiver,~~we ~~nor~~are ~~did~~very ~~our principle~~proud of ~~making sound and prudent investments~~this achievement. ByIn ~~continuously~~today’s ~~updating~~market, ~~our~~it certainly ~~financial~~is ~~models~~not tounusual ~~position the Bank~~ to ~~anticipate~~drive down the ~~fluctuations~~highway inand ~~the~~see ~~ever-changing~~names ~~economy~~change ofon ~~today’s~~bank ~~world~~signs we(and ~~were~~new, ~~able~~OUT toOF ~~move~~TOWN ~~with the market – not respond to it~~owners), but ~~actually move~~ours ~~with~~stays itthe SAME. We ~~are~~had ~~pleased~~a tovision ~~report we~~40 ~~were~~years ~~successful: dividends to shareholders were up in 2002~~ago, ~~loan loss provision was increased~~ and weby ~~continued~~managing to ~~show~~achieve athat ~~stable~~goal ~~earning~~we ~~stream. Not~~are astill ~~small~~here ~~feat~~for ~~in the current market situation~~you. ~~Management’s~~We ~~effort~~knew ~~this~~we ~~past~~needed ~~year~~four ~~were concentrated~~basic incomponents ~~improving asset quality and providing services~~ to ~~the~~ ~~communities~~be ~~in three areas~~successful: ( 1) ~~affordable~~ ~~home~~the ~~loans~~best people, (2) ~~innovative~~the ~~business~~best ~~lending~~facility, ~~and (~~3) ~~meeting~~state of the art ~~customers~~technology ~~needs~~and ~~for~~4) ~~financial~~leadership ~~services~~with commitment. ~~Our~~We ~~management~~feel ~~realizes~~we ~~the continued success of our Holding Company has a direct correlation to the faith our customers~~ have inachieved ~~our~~these ~~ability~~goals ~~to provide that “hometown bank” feel~~ and ~~continue~~are tograteful ~~provide~~the ~~our~~community ~~special “personal touch”;~~has ~~the~~rewarded ~~one~~us ~~they~~with ~~have~~their ~~come~~continued ~~to expect, while continuing to provide sound financial products~~support.

~~Our~~We ~~employees~~started ~~have~~out with one ~~continued~~facility toand beconcentrated aon ~~familiar~~becoming ~~sight~~the inkind ~~local~~of ~~organizations~~bank that would not only meet any of your banking or financial needs, ~~schools~~but ~~and~~would be a part of your ~~churches~~community. ~~Their~~We ~~support~~focused ~~and~~on ~~commitment~~getting toand keeping the ~~local~~best ~~communities~~people…your isneighbors…not ~~inspiring~~someone infrom ~~today’s~~out of ~~world;~~town ~~embracing~~who not only ~~the challenges~~didn’t inknow ~~today~~you, but also didn’t know the area’s needs. As ~~market~~we fulfilled this commitment, we ~~but~~knew ~~the~~it ~~opportunities~~was time to ~~make~~grow. We branched ~~our~~out ~~world~~into amore ~~better~~communities and today we have five sites, each meeting ~~place~~the four basic goals with which we started.

WeBy ~~again~~continuing ~~want~~ to ~~express~~anticipate the ~~our~~fluctuations ~~sincere~~in ~~thanks~~today’s toeconomy ~~our~~and ~~employees~~moving ~~for~~ahead ~~their~~of ~~commitment~~the curve, towe ~~our~~have ~~shareholders~~managed, ~~for~~even ~~their~~with ~~support,~~the tocontinuing ~~our~~slow ~~directors~~market, ~~for~~to ~~their~~provide ~~leadership~~dividends ~~and~~to ~~for the confidence~~shareholders, ofaffordable ~~our~~homes ~~customers. We are firm in our continued commitment~~ to ~~our~~neighbors, ~~markets~~innovative ~~and~~lending ~~look forward~~ to ~~facing~~business ~~any~~while ~~new~~meeting the ~~challenges~~general asfinancial ~~your~~needs ~~only~~of ~~locally~~all ~~owned~~our ~~bank in the Southern West Virginia~~customers. ~~tradition~~We ofspecialize in giving all our ~~best~~customers tothat ~~the~~“hometown” ~~best!~~treatment.

~~Respectively~~Our employees have been one of our biggest assets for the past forty years. They continue to be involved in local schools, churches and organizations. In today’s fast-paced world, it is comforting and inspiring to have people who are equally concerned with excelling in the business market and making our community a better place for us all.

~~Harvey~~We Hwant to sincerely thank our directors for their vision, our shareholders for their support, our employees for their continued dedication and to our customers for their confidence. We ~~Oakley~~pledge ~~Eddie~~to ~~Canterbury~~continue ~~Chairman/President~~to ~~Executive~~focus ~~Vice-President/CEO~~on the vision and meet all new challenges as only a locally owned bank can do. We will continue the tradition!

32Respectively,

~~[LETTERHEAD~~Harvey OFH. ~~McNEAL, WILLIAMSON~~Oakley &Eddie ~~CO.]~~Canterbury Chairman/President Executive Vice-President/CEO

~~INDEPENDENT AUDITORS’ REPORT~~32

To[Mc ~~the~~NEAL. ~~Board~~WILLIAMSON of& ~~Directors and Stockholders of Logan County BancShares, Inc~~CO. ~~and~~LETTER ~~Subsidiary~~HEAD]

We have audited the accompanying consolidated statements of condition of Logan County BancShares, Inc., and Subsidiary as of December 31, 2002, and 2001, and the related consolidated statements of income, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2002. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

Donald M. McNecl. CPA		Daniel L. Williamson, CPA
Post Office Box 1839		525 Tiller St., Cherry Tree Addn.
Logan, West Virginia 2560;		Logan, West Virginia 2560;
Phone (304) 752-0461		Fax (304) 752-4660

WeINDEPENDENT ~~conducted~~AUDITORS’ our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.REPORT

InTo ~~our opinion,~~ the ~~financial statements referred to~~Board ~~above~~of ~~present~~Directors ~~fairly,~~and ~~in all material respects, the consolidated financial~~Stockholders ~~position~~ of Logan County BancShares, Inc. and Subsidiary as of December 31, 2002, and 2001, and the consolidated results of its operations and cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America.

~~/s/~~We ~~McNeal,~~have audited ~~Williamson~~the &accompanying ~~Co.~~consolidated statements of condition of Logan County BancShares, ~~West~~Inc., ~~Virginia~~and ~~February~~Subsidiary 26as of December 31, 2003, and 2002, and the related consolidated statements of income, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

33We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provides a reasonable basis for our opinion.

~~Logan~~In ~~County BancShares,~~our ~~Inc.~~opinion, ~~and~~the ~~Subsidiary~~financial statements referred to above present

~~Consolidated~~fairly, ~~Statement~~in all material respects, the consolidated financial position of ~~Condition~~Logan County BancShares, Inc. and Subsidiary as of December 31, 2003, and 2002, and the results of their operations and cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America.

~~December~~/s/ 31McNeal, ~~2002~~Williamson ~~and 2001~~& Co. Logan, West Virginia February 26, 2004

~~ASSETS~~33

	2002		2001
CASH AND DUE FROM BANKS	$	5,967,423	$	7,072,209
INVESTMENT SECURITIES:
Available for sale	41,305,138		36,355,332
Held to maturity	0		0
Total Investment Securities	41,305,138		36,355,332
FEDERAL FUNDS SOLD	11,370,000		7,150,000
LOANS:
Mortgage Loans	52,502,944		53,718,980
Installment Loans	11,449,826		13,977,895
Commercial and Other Loans	43,979,821		49,210,538
Total Loans	107,932,591		116,907,413
Less: Unearned Interest	0		0
Reserve for Loan Losses	1,618,632		1,152,777
Net Loans	106,313,959		115,754,636
BANK PREMISES AND EQUIPMENT	3,217,324		3,383,539
INTEREST RECEIVABLE	811,373		973,167
OTHER ASSETS	713,556		738,933
TOTAL ASSETS	$	169,698,773	$	171,427,816

Logan County BancShares, Inc. and Subsidiary

~~The~~Consolidated ~~accompanying~~Statement ~~notes are an integral part~~ of ~~these consolidated financial statements~~Condition

34December 31, 2003 and 2002

~~Logan County BancShares, Inc. and Subsidiary~~ASSETS

Consolidated Statement of Condition

	2003		2002

CASH AND DUE FROM BANKS	$	7,239,884	$	5,967,423

INVESTMENT SECURITIES:
Available for sale	47,972,978		41,305,138
Held to maturity	0		0

Total Investment Securities	47,972,978		41,305,138

FEDERAL FUNDS SOLD	13,385,000		11,370,000

LOANS:
Mortgage Loans	51,031,339		52,502,944
Installment Loans	10,457,792		11,449,826
Commercial and Other Loans	40,125,576		43,979,821

Total Loans	101,614,706		107,932,591

Less:Unearned Interest	0		0
Reserve for Loan Losses	1,581,414		1,618,632

Net Loans	100,033,292		106,313,959

BANK PREMISES AND EQUIPMENT	3,103,002		3,217,324

INTEREST RECEIVABLE	843,052		811,373

OTHER ASSETS	3,081,834		713,556

TOTAL ASSETS	$	175,659,042	$	169,698,773

~~December~~The ~~31,~~accompanying ~~2002~~notes ~~and~~are an integral part of these consolidated ~~2001~~financial statements

~~LIABILITIES AND STOCKHOLDERS’ EQUITY~~34

	2002			2001
DEPOSITS
Non-Interest Bearing	$	25,076,180		$	27,571,238
Interest Bearing	21,851,348			21,370,908
Savings Deposits	44,864,222			39,803,797
Time Certificates	58,651,287			63,282,186
Total Deposits	150,443,037			152,028,129
REPURCHASED AGREEMENTS	1,000,000			2,000,000
ACCRUED AND OTHER LIABILITIES	1,046,326			617,322
FEDERAL INCOME TAXES PAYABLE:
Current	(9,878		)	(17,765		)
Deferred	26,687			—
TOTAL LIABILITIES	152,506,172			154,627,686
STOCKHOLDERS’ EQUITY:
Common Stock - $1.67 par value; Authorized - 780,000 shares, Outstanding - 703,991 shares in 2002 and 716,991 in 2001	1,300,000			1,300,000
Surplus	2,408,426			2,408,426
Retained Earnings	14,630,049			13,916,868
Net unrealized amortization on securities available for sale	260,324			35,034
Treasury Stock	(1,406,198		)	(860,198		)
TOTAL STOCKHOLDERS’ EQUITY	17,192,601			16,800,130
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	169,698,773		$	171,427,816

Logan County BancShares, Inc. and Subsidiary
Consolidated Statement of Condition
December 31, 2003 and 2002

TheLIABILITIES accompanyingAND notesSTOCKHOLDERS’ are an integral part of these consolidated financial statements.EQUITY

	2003			2002

DEPOSITS:
Non-Interest Bearing	$	30,097,669		$	25,076,180
Interest Bearing	23,256,409			21,851,348
Savings Deposits	43,203,543			44,864,222
Time Certificates	57,594,652			58,651,287

Total Deposits	154,152,273			150,443,037

REPURCHASED AGREEMENTS	3,000,000			1,000,000

ACCRUED AND OTHER LIABILITIES	582,440			1,046,326

FEDERAL INCOME TAXES PAYABLE:
Current	(34,971		)	(9,878		)
Deferred	169,718			26,687

TOTAL LIABILITIES	157,869,460			152,506,172

STOCKHOLDERS’ EQUITY:
Common Stock – $1.67 par value; Authorized – 780,000 shares, Outstanding – 703,991 shares in 2003 and 2002.	1,300,000			1,300,000
Surplus	2,408,426			2,408,426
Retained Earnings	15,425,806			14,630,049
Net unrealized amortization on securities available for sale	61,548			260,324
Treasury Stock	(1,406,198		)	(1,406,198		)

TOTAL STOCKHOLDERS’ EQUITY	17,789,582			17,192,601

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	175,659,042		$	169,698,773

~~Logan~~The ~~County~~accompanying ~~BancShares, Inc.~~notes ~~and~~are ~~Subsidiary~~an integral part of these consolidated financial statements.

~~Consolidated Statement of Income~~35

Logan County BancShares, Inc. and Subsidiary Consolidated Statement of Income For the Years Ended ~~December~~ December 31, ~~2002~~2003, ~~2001~~2002, and ~~2000~~2001

	2002			2001			2000
	2003			2002			2001
INTEREST INCOME
Loans, Including fees	$	87,~~518~~578,~~297~~902		$	98,~~981~~518,~~814~~297		$	9,~~513~~981,~~879~~814
Investment Securities:
Available for Sale	1,~~363~~005,~~725~~086			1,~~354~~363,~~163~~725			1,~~885~~354,~~787~~163
Held to Maturity	0			0			0
FEDERAL FUNDS SOLD	~~205~~182,~~786~~160			~~753~~205,~~745~~786			~~108~~753,~~011~~745
Total Interest Income	108,~~087~~766,~~808~~148			1210,~~089~~087,~~722~~808			1112,~~507~~089,~~677~~722
INTEREST EXPENSE:
Deposits	21,~~607~~986,~~604~~728			42,~~661~~607,~~023~~604			4,~~758~~661,~~575~~023
Other Borrowings	~~156~~100,~~508~~173			~~140~~156,~~000~~508			68140,~~950~~000
Total Interest Expense	2,~~764~~086,~~112~~901			42,~~801~~764,~~023~~112			4,~~827~~801,~~525~~023
NET INTEREST INCOME	76,~~323~~679,~~696~~247			7,~~288~~323,~~699~~696			67,~~680~~288,~~152~~699
PROVISION FOR LOAN LOSSES	~~533~~2,~~819~~850			~~700~~533,~~000~~819			~~100~~700,000
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	6,~~789~~676,~~877~~397			6,~~588~~789,~~699~~877			6,~~580~~588,~~152~~699
OTHER INCOME:
Service Fees	~~656~~857,~~160~~099			~~628~~656,~~220~~160			~~668~~628,~~719~~220
Other	~~148~~129,~~407~~021			72148,~~694~~407			~~100~~72,~~516~~694
Securities Gains (Losses)	0148			~~6,248~~0			06,248
	804,567			707,162			769,235
	986,268			804,567			707,162
OTHER EXPENSES:
Salaries and Benefits	$	2,321,908		$	2,216,849		$	2,147,995
Taxes Other Than Payroll & Income	129,951			84,970			69,879
Depreciation	273,928			269,956			273,478
Repairs and Maintenance	230,105			222,734			178,994
Feed Paid to Directors	80,125			79,950			78,850
Equipment Rental	42,739			41,384			40,963
FDIC & Fidelity Insurance	109,544			112,347			98,603
Data Processing	532,884			513,965			475,161
Bank Stationery and Printing	142,992			162,939			119,180
Professional Fees	113,925			86,235			71,273
Other Operating Expenses	710,734			839,321			631,022
	$	4,688,835		$	4,630,650		$	4,185,398
INCOME BEFORE TAXES	2,905,609			2,665,211			3,163,989
INCOME TAXES:
Current	1,194,397			1,123,259			1,132,515
Deferred	(130,620		)	(213,669		)	(1,247		)
NET INCOME	$	1,841,832		$	1,755,621		$	2,032,721
NET INTEREST INCOME AFTER PER SHARE OF COMMON STOCK:
NET INCOME	$	2.57		$	2.45		$	2.84

The accompanying notes are an integral part of these consolidated financial statements.

Logan County BancShares, Inc. and Subsidiary Consolidated Statement of Income For the Years Ended December 31, 2003, 2002 and 2001

Consolidated Statement of Stockholders’ Equity

	2003			2002			2001
OTHER EXPENSES:
Salaries and Benefits	$	2,377,040		$	2,321,908		$	2,216,849
Taxes Other Than Payroll & Income	109,713			129,951			84,970
Depreciation	259,804			273,928			269,956
Repairs and Maintenance	277,374			230,105			222,734
Fees Paid to Directors	77,400			80,125			79,950
Equipment Rental	39,073			42,739			41,384
FDIC & Fidelity Insurance	106,944			109,544			112,347
Data Processing	558,676			532,884			513,965
Bank Stationery and Printing	145,724			142,992			162,939
Professional Fees	66,262			113,925			86,235
Other Operating Expenses	710,271			710,734			839,321
	$	4,728,283		$	4,688,835		$	4,630,650

INCOME BEFORE TAXES	2,934,382			2,905,609			2,665,211

INCOME TAXES:
Current	1,082,066			1,194,397			1,123,259
Deferred	(48,707		)	(130,620		)	(213,669		)
NET INCOME	$	1,901,023		$	1,841,832		$	1,755,621

NET INTEREST INCOME AFTER PER SHARE OF COMMON STOCK: NET INCOME	$	2.70		$	2.62		$	2.49

~~For~~ The ~~Years~~accompanying ~~Ended~~notes ~~December~~are ~~31,~~an ~~2002,~~integral ~~2001,~~part ~~and~~of ~~2000~~these consolidated financial statements.

	COMMON STOCK		SURPLUS		RETAINED EARNINGS			TREASURY STOCK			ACCUMULATED OTHER COMPREHENSIVE INCOME, NET			TOTAL
Balance - December 31, 1999	$	1,300,000	$	2,408,426	$	12,236,479		$	(860,198	)	$	(641,014	)	$	14,443,693
Comprehensive Income
Net Income - 2000					2,032,721									2,032,721
Net unrealized gain on securities available for Sale											570,269			570,269
Total Comprehensive income					2,032,721						570,269			2,602,990
Dividends on 716,991 shares of Common Stock @ $1.44					(1,032,467		)							(1,032,467		)
Balance - December 31, 2000	1,300,000		2,408,426		13,236,733			(860,198		)	(70,745		)	16,014,216
Comprehensive Income
Net Income - 2001					1,755,621									1,755,621
Net unrealized gain on securities available for Sale											105,779			105,779
Total Comprehensive income					1,755,621						105,779			1,861,400
Dividends on 716,991 shares of Common Stock @ $1.50					(1,075,487		)							(1,075,487		)
Balance - December 31, 2001	1,300,000		2,408,426		13,916,868			(860,198		)	35,034			16,800,129
Correction of Error					(31,416		)							(31,416		)
Comprehensive Income
Net Income - 2002					1,841,833									1,841,833
Net unrealized gain on securities available for Sale											225,290			225,290
Total Comprehensive income					1,841,833						225,290			2,067,123
Purchased 13,000 shares @ $42.00/share								(546,000		)
Dividends on 716,991 shares of Common Stock @ $1.53					(1,096,996		)
Balance - December 31, 2002	$	1,300,000	$	2,408,426	$	14,630,289		$	(1,406,198	)	$	260,324		$	17,192,841

~~The~~Logan ~~accompanying~~County ~~notes~~BancShares, ~~are~~Inc. anand ~~integral~~Subsidiary Consolidated ~~part~~Statement of Stockholders’ Equity ~~these~~For ~~consolidated~~the ~~financial~~Years ~~statements~~Ended December 31, 2003, 2002, and 2001

	COMMON STOCK		RETAINED SURPLUS		TREASURY EARNINGS			STOCK			ACCUMULATED OTHER COMPREHENSIVE INCOME, NET			TOTAL
Balance-December 2000	$	1,300,000	$	2,408,426	$	13,236,733		$	(860,198	)	$	(70,745	)	$	16,014,216

Comprehensive Income
Net Income - 2001					1,755,621									1,755,621
Net unrealized gain on securities available for Sale											105,779			105,779

Total Comprehensive Income					$	1,755,621					$	105,779		$	1,861,400

Dividends on 716,991 shares of Common					(1,075,487		)							(1,075,487		)
Stock @ $1.34 Balance-December 31, 2001	$	1,300,000	$	2,408,426	$	13,916,867		$	(860,198	)	$	35,034		$	16,800,129

Correction of Error					(31,655		)							(31,655		)

Comprehensive Income
Net Income 2002					1,841,833									1,841,833
Net unrealized gain on securities available for sale											225,290			225,290

Total Comprehensive Income					1,841,833						225,290			2,067,123

Purchased 13,000 shares of Common stock@ #42.00/sh								(546,000		)				(546,000		)
Dividends on 716,991 shares of common Stock @ $1.53					(1,096,996		)							(1,096,996		)

Balance-December 31,2002	$	1,300,000	$	2,408,426	$	14,630,049		$	(1,406,198	)	$	260,324		$	17,192,601

Comprehensive Income
Net Income 2003					1,901,023									1,901,023
Net unrealized gain on securites available for sale											(198,776		)	(198,776		)

Total Comprehensive Income					1,901,023						(198,776		)	1,702,247

Dividends on 703,991 shares of Common Stock @ $1.57					(1,105,266		)							(1,105,266		)

Balance-December 31,2003	$	1,300,000	$	2,408,426	$	15,425,806		$	(1,406,198	)	$	61,548		$	17,789,582

~~Logan County BancShares, Inc. and Subsidiary~~38

Logan County BancShares, Inc. and Subsidiary Consolidated Statement of Change in Cash Flows For the Years Ended December 31, 2003, 2002 and 2001

~~For~~INCREASES ~~the~~(DECREASES) ~~Years~~IN ~~Ended December~~CASH ~~31,~~AND ~~2002, 2001 and 2000~~CASH EQUIVALENTS

INCREASES (DECREASES) IN CASH AND CASH EQUIVALENTS

	2003			2002			2001

CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	1,901,023		$	1,841,833		$	1,755,621
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and Amortization	259,804			273,928			269,956
Provision For Loan Losses	2,850			533,819			700,000
Provision for Deferred Taxes	(48,707		)	(130,620		)	(213,669		)
(Gain) Loss on Sale of Securities	(147		)	0			(6,248		)
Premium Amortization and Accretion
on Investment Securities	(329,208		)	66,565			(3,356		)
Increases (Decreases) in Income
Taxes Payable	25,093			7,887			(35,561		)
(Increases) Decreases in Interest
Receivable and other Assets	(2,368,279		)	196,970			503,222
Increases (Decreases) in Interest
Payable and Other Liabilities	(463,886		)	373,122			(44,715		)
Market Value Adjustment
Amortization	—			—			4,028

Net Cash Provided by Operating Activities	(1,021,457		)	3,163,504			2,929,278

CASH FLOWS FROM INVESTING ACTIVTIES:
Proceeds from Sale of Investment Sec: Available for Sale	35,831,883			19,925,000			8,006,248
Held to Maturity	0			0			0
Proceeds from Maturities of Inv. Sec: Available for Sale	20,000,000			0			41,000,000
Held to Maturity	0			0			0
Purchase of Investment Securities: Available for Sale	(62,262,121		)	(24,612,311		)	(55,583,423		)
Held to Maturity	0			0			0
Net (Increases) Decreases Federal Funds Sold	(2,015,000		)	(4,220,000		)	(2,870,000		)
Net (Increases) Decreases Commercial Loans	1,434,388			5,230,717			(1,684,868		)
Net (Increases) Decreases Real Estate Loans	3,854,245			1,216,036			(1,122,206		)
Net (Increases) Decreases Insallment Loans	992,034			2,528,069			(459,727		)
Purchase of Bank Premises and Equipment	(145,482		)	(107,713		)	(59,493		)

Net Cash Used by Investing Actvities	(2,310,052		)	(40,202		)	(12,773,469		)

	2002			2001			2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	1,841,833		$	1,755,621		$	2,032,271
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and Amortization	273,928			269,956			277,506
Provision For Loan Losses	533,819			700,000			100,000
Provision for Deferred Taxes	(130,620		)	(213,669		)	(1,247		)
(Gain) Loss on Sale of Securities	0			(6,248		)	0
Premium Amortization and Accretion on Investment Securities	66,565			(3,356		)	(5,060		)
Increases (Decreases) in Income Taxes Payable	7,887			(35,561		)	35,373
(Increases) Decreases in Interest Receivable and other Assets	196,970			503,222			32,608
Increases (Decreases) in Interest Payable and Other Liabilities	373,122			(44,715		)	(119,149		)
Market Value Adjustment Amortization	—			4,028			4,028
Net Cash Provided by Operating Activities	3,163,504			2,929,278			2,356,330
CASH FLOWS FROM INVESTING ACTIVTIES:
Proceeds from Sale of Investment Sec:
Available for Sale	19,925,000			8,006,248			0
Held to Maturity	0			0			0
Proceeds from Maturities of Inv. Sec:
Available for Sale	0			41,000,000			7,400,000
Held to Maturity	0			0			0
Purchase of Investment Securities:
Available for Sale	(24,612,311		)	(55,583,423		)	(5,943,619		)
Held to Maturity	0			0			0
Net (Increases) Decreases Federal Funds Sold	(4,220,000		)	(2,870,000		)	(4,280,000		)
Net (Increases) Decreases Commercial Loans	5,230,717			(1,684,868		)	(2,555,021		)
Net (Increases) Decreases Real Estate Loans	1,216,036			(1,122,206		)	(1,434,191		)
Net (Increases) Decreases Insallment Loans	2,528,069			(459,727		)	(178,648		)
Purchase of Bank Premises and Equipment	(107,713		)	(59,493		)	(93,479		)
Net Cash Used by Investing Actvities	(40,202		)	(12,773,469		)	(7,084,958		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increases (Decreases) in Demand Deposits	$	(2,014,618	)	$	6,163,724		$	4,447,940
Net Increases (Decreases) in Savings Deposits	5,060,425			7,516,489			1,263,647
Net Increases (Decreases) in Time Deposits	(4,630,899		)	(374,873		)	5,392,497
Net Increases (Decreases) in Repurchased Agreements	(1,000,000		)	0			(7,840,000		)
Purchase of Treasury Stock at Cost	(546,000		)	0			0
Dividends Paid	(1,096,996		)	(1,075,487		)	(1,032,437		)
Net Cash Provided by Financing Activities	$	(4,228,088	)	$	12,229,853		$	2,231,647
Net Increase (Decrease) in Cash and Cash Equivalents	(1,104,786		)	2,385,662			(2,496,977		)
Cash and Cash Equivalents at Beginning of Year	7,072,209			4,686,547			7,183,524
Cash and Cash Equivalents at End of Year	$	5,967,423		$	7,072,209		$	4,686,547
Supplemental Disclosures of Cash Flow Infrmation Cash Paid for:
Interest	$	2,836,084		$	4,876,027		$	4,762,739
Income Taxes	$	1,186,510		$	1,118,983		$	1,117,740

The accompanying notes are an integral part of these financial statements.

~~The accompanying notes are an integral part of these financial statements.~~39

38Logan County BancShares, Inc. and Subsidiary Consolidated Statement of Changes in Cash Flows For the Years Ended December 31, 2003, 2002 and 2001

~~Logan~~INCREASES ~~County~~(DECREASES) ~~BancShares, Inc.~~IN ~~and~~CASH ~~Subsidiary~~AND CASH EQUIVALENTS

Notes to Consolidated Financial Statements

	2003			2002			2001

CASH FLOWS FROM FINANCING ACTIVITIES:

Net Increases (Decreases) in Demand Deposits	$	6,426,550		$	(2,014,618	)	$	6,163,724
Net Increases (Decreases) in Savings Deposits	(1,660,679		)	5,060,425			7,516,489
Net Increases (Decreases) in Time Deposits	(1,056,635		)	(4,630,899		)	(374,873		)
Net Increases (Decreases) in Repurchased Agreements	2,000,000			(1,000,000		)	0
Purchase of Treasury Stock at Cost	0			(546,000		)	0
Dividends Paid	(1,105,266		)	(1,096,996		)	(1,075,487		)

Net Cash Provided by Financing Activities	$	4,603,970		$	(4,228,088	)	$	12,229,853

Net Increase (Decrease) in Cash and Cash Equivalents	1,272,461			(1,104,786		)	2,385,662

Cash and Cash Equivalents at Beginning of Year	5,967,423			7,072,209			4,686,547

Cash and Cash Equivalents at End of Year	$	7,239,884		$	5,967,423		$	7,072,209

Supplemental Disclosures of Cash Flow Infrmation Cash Paid for:

Interest	$	2,097,994		$	2,836,084		$	4,876,027
Income Taxes	$	1,107,160		$	1,186,510		$	1,118,983

~~December~~The ~~31,~~accompanying ~~2002,~~notes ~~2001 and~~are ~~2000~~an integral part of these financial statements.

~~1. Summary of Significant Accounting Policies:~~40

ALogan County BancShares, Inc. ~~Basis~~ ofand ~~Consolidation:~~Subsidiary Notes to Consolidated Financial Statements December 31, 2003, 2002 and 2001

~~The Consolidated Financial Statements of Logan County BancShares, Inc~~1. ~~and its subsidiary include the~~ Summary ~~accounts~~ of ~~Logan~~Significant ~~County~~Accounting BancShares, Inc. a bank holding company and its wholly owned subsidiary, Logan Bank & Trust Company. As further discussed in Note 13, the Company’s subsidiary was merged into Logan Bank & Trust Company on May 28, 1996. The merger was accounted for under the pooling of Interest Method of accounting and no restatement was necessary. All material intercompany balances and transactions have been eliminated in consolidation.Policies:

BA. ~~Nature~~ Basis of ~~Operations~~Consolidation:

The ~~Bank~~Consolidated ~~operates~~Financial ~~under~~Statements of ~~Federal~~Logan ~~charter~~County BancShares, Inc. and ~~provides~~its ~~full~~subsidiary ~~banking~~include ~~services~~the accounts of Logan County BancShares, Inc. a bank holding company and its wholly owned subsidiary, Logan Bank & Trust Company. As further adiscussed ~~Federal~~in ~~bank~~Note 13, the Company’s subsidiary was merged into Logan Bank & isTrust ~~subject~~Company toon ~~regulation~~May by28, ~~the~~1996. ~~Federal~~The ~~Reserve~~merger ~~System~~was ~~and~~accounted for under the ~~Federal~~Pooling ~~Deposit~~of ~~Insurance~~Interest ~~Corporation~~Method of accounting and no restatement was necessary. All material intercompany balances and transactions have been eliminated in consolidation.

CB. ~~Estimates in the~~ Nature ~~Financial~~of ~~Statements~~Operations:

The ~~presentation~~Bank ofoperates ~~the financial~~under ~~statements~~Federal incharter, ~~conformity~~and provides ~~with~~full ~~accounting~~banking ~~principles~~services. As ~~generally~~a ~~accepted~~Federal inbank, the ~~United~~Bank ~~States~~is ofsubject ~~America requires management~~ to ~~make~~regulation ~~estimates and~~by ~~assumptions that affect~~ the ~~reported~~Federal ~~amounts~~Reserve ~~of assets and liabilities and~~System ~~disclosure of contingent assets~~ and ~~liabilities at~~ the ~~date~~Federal ofDeposit ~~the~~Insurance ~~financial statements and the reported amounts of revenues and expenses during the reporting period~~Corporation. ~~Actual results could differ from those estimates.~~

DC. ~~Cash~~ Estimates in ~~and~~the ~~Cash Equivalents~~Financial Statements:

~~For~~The ~~purposes~~presentation of ~~reporting~~the financial statements ~~cash~~in ~~flows,~~conformity ~~cash~~with accounting principles generally accepted in the United States of America requires management to make estimates and ~~cash~~assumptions ~~equivalents~~that affect ~~include~~the ~~cash~~reported onamounts ~~hand~~of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts ~~due~~of revenues and expenses during the reporting period. Actual results could differ from those ~~banks~~estimates.

ED. ~~Investment~~ Cash ~~Securities~~and Cash Equivalents:

~~The~~For ~~Banks’~~purposes ~~Investment~~of reporting cash flows, cash ~~Securities~~and ~~are~~due ~~classified~~from banks includes cash on hand and amounts due from banks (including cash items in ~~two~~process ~~categories~~of clearing). Cash flows from demand deposits, NOW accounts, money market demand accounts, savings accounts and ~~accounted~~Federal ~~for~~funds aspurchased ~~follows:~~and sold are reported net since their original maturities are less than three months. Cash flows from loans and certificates of deposits and other time deposits are reported net.

Securities Available for Sale: Securities available for sale consist of bands, notes, debentures, and certain equity securities not classified as securities held to maturity. These securities are carried at their fair value. Unrealized gains and (losses), net of tax, are reported as a net amount in a separate component of Shareholders’ Equity until realized. 41

39E. Investment Securities:

~~Securities~~The toBanks’ beInvestment ~~Held~~Securities toare ~~Maturity: Bonds,~~classified ~~notes~~in ~~and~~two ~~debentures for~~categories ~~which the banks have the positive intent~~ and ~~ability~~accounted ~~to hold to maturity are reported at cost, adjusted~~ for ~~amortization~~as ~~of premiums and accretion of discounts which are recognized in interest income, using the Constant Yield Method, over the period to maturity.~~follows:

~~Gains~~Securities ~~and~~Available ~~losses~~for onSale: Securities available for sale consist of bonds, notes, debentures, and certain equity securities ~~available~~not ~~for~~classified ~~sale~~as securities held to maturity. These securities are ~~determined~~carried ~~using~~at ~~the~~their fair value. ~~Specific-Indentification~~Unrealized ~~Method~~gains and (losses), net of tax, are reported as a net amount in a separate component of Shareholders’ Equity until realized.

~~F. Loans~~Securities to be Held to Maturity: Bonds, notes and debentures for which the banks have the positive intent and ability to hold to maturity are reported at cost, adjusted for amortization of premiums and accretion of discounts which are recognized in interest income, using the Constant Yield Method, over the period to maturity. Gains and losses on sale of securities available for sale are determined using the Specific-Indentification Method.

F. Loans ~~are stated at the~~ ~~amount of unpaid principal, reduced by unearned income~~ and anReserve ~~allowance~~ for ~~loan~~ ~~losses. Interest~~Loan income on loans is recognized on the accrual basis except for those loans in a non-accrual income status. The accrual of interest on impaired loans is discontinued when management believes, after consideration of economic and business conditions and collection efforts, that the Borrowers’ financial condition is such that collection of interest is doubtful. When interest accrual is discontinued, interest income is subsequently recognized only to the extent cash payments are received. Losses:

~~The~~Loans ~~reserve~~are ~~for~~stated ~~loan~~at the amount of unpaid ~~losses~~principal, isreduced ~~established~~by ~~through~~unearned aincome ~~provision~~and an allowance for loan losses ~~charged to expense~~. ~~The~~Interest ~~reserve~~income ison anloans ~~amount~~is ~~that~~recognized on ~~management~~the ~~believes~~accrual ~~will~~basis beexcept ~~adequate~~for tothose ~~absorb~~loans ~~losses~~in a non-accrual income status. The accrual of interest on ~~existing~~impaired loans ~~that~~is ~~may~~discontinued ~~become~~when ~~uncollectible~~management ~~based~~believes, onafter ~~evaluations~~consideration of ~~the~~economic ~~collectibility~~and business ofconditions ~~loans~~ and ~~prior~~collection ~~loan~~efforts, ~~loss~~that ~~experience. The evaluations~~the ~~take~~Borrowers’ ~~into~~financial condition ~~consideration~~is such ~~factors~~that ascollection ~~changes~~of ininterest ~~the~~is ~~nature~~doubtful. When ~~and~~interest accrual is discontinued, ~~volume~~interest ofincome ~~the~~is ~~loan~~subsequently ~~portfolio,~~recognized ~~overall~~only ~~portfolio~~to ~~quality,~~the ~~review~~extent ofcash ~~specific~~payments are received.

40The reserve for loan losses is established through a provision for loan losses charged to expense. The reserve is an amount that management believes will be adequate to absorb losses on existing loans that may become uncollectible based on evaluations of the collectibility of loans and prior loan loss experience. The evaluations take into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific

problem loans and current economic conditions that may affect the borrowers’ ability to pay. Loans are charged against the allowance for loan losses when management believes the collection of the principal is unlikely. 42

~~The~~problem ~~allowance for loan losses on impaired~~ loans isand ~~determined~~current ~~using~~economic ~~the~~conditions ~~present~~that ~~value~~may ofaffect ~~estimated future cash flows of~~ the ~~loan, discounted at the loan~~ borrowers’s ~~effective~~ability ~~interest~~to ~~rate or the fair value of the underlying collateral~~pay. ALoans ~~loan is considered to be impaired when it is probable all principal~~are ~~and~~charged ~~interest~~against ~~amounts will not be collected according to~~ the ~~loan contract.~~ ~~The~~allowance ~~entire change in present value of expected cash flows is reported as provision~~ for loan losses inwhen ~~the~~management ~~same~~believes ~~manner in which impairment initially was recognized or as a reduction in~~ the ~~amount~~collection of ~~provision~~ ~~for~~the ~~loan~~principal ~~losses~~is ~~that otherwise would be reported~~unlikely.

~~Certain~~A loan ~~origination~~is considered to be impaired when it ~~fees~~is probable all principal and ~~direct~~interest amounts ~~origination~~will ~~costs~~not ~~are~~be ~~capitalized~~collected ~~and~~according ~~recognized~~to asthe anloan contract. Impaired loans, ~~adjustment~~other than certain large groups of smaller-balance, homogeneous loans that are collectively evaluated for impairment, are to be reported at the ~~yield~~present onvalue of expected future cash flows discounted using the ~~related~~loan’s original effective interest rate or, alternatively, at the loan’s observable market price, or at the fair value of the loan’s collateral if the loan is collateral dependent. The method selected to measure impairment is made on a loan-by-loan basis, unless foreclosure is deemed to be probable, in which case the fair value of the collateral method is used.

~~G. Bank~~Certain ~~Premises~~loan origination fees and direct ~~Equipment:~~origination costs are capitalized and recognized as an adjustment of the yield on the related loan.

G. Bank ~~premises and~~ ~~equipment~~Premises ~~are stated at cost, less accumulated depreciation. Repairs~~ and maintenance expenditures are charged to operating expenses as incurred. Major improvements and additions to premises and equipment are capitalized. Depreciation is provided over the estimated useful lives of the assets as followsEquipment:

	Methods	Range of Lives
Banking House	S/L, CRS	10 - 40 years
Furniture, Fixtures and Equipment	S/L,DDB, ACRS	3 - 20 years

Bank premises and equipment are stated at cost, less accumulated depreciation. Repairs and maintenance expenditures are charged to operating expenses as incurred. Major improvements and additions to premises and equipment are capitalized. Depreciation is provided over the estimated useful lives of the assets as follows:

	Methods	Range of Lives

Banking House	S/L, CRS	10 - 40 years

Furniture, Fixtures and Equipment	S/L,DDB, ACRS	3 - 20 years

~~H. Real Estate Acquired Through Foreclosure:~~43

H. Real ~~estate acquired~~ ~~through~~Estate ~~foreclosure~~Acquired isThrough carried at the lower of the recorded investment in the property of its fair value. The value of the underlying loan is written down to the fair value of the real estate to be acquired by a charge to the allowance for loan losses, if necessary. Any subsequent write-downs are charged to operating expenses.Foreclosure:

IReal estate acquired through foreclosure is carried at the lower of the recorded investment in the property or its fair value. ~~Income~~ The ~~Taxes:~~value of the underlying loan is written down to the fair value of the real estate to be acquired by a charge to the allowance for loan losses, if necessary. Any subsequent write-downs are charged to operating expenses.

~~The Company and its subsidiary file a consolidated federal income tax return~~I. ~~The Subsidiary is charged or credited an~~ Income ~~amount equal to the income tax that would have been applicable on a separate return basis.~~Taxes:

The Company ~~uses~~and ~~the liability~~its ~~method~~subsidiary ~~for~~file ~~computing~~a consolidated ~~deferred~~federal income ~~taxes~~tax return. ~~Under~~ The ~~the~~Subsidiary ~~liability~~is ~~method,~~charged ~~deferred~~or ~~income~~credited ~~taxes~~an ~~are~~amount ~~based~~equal ~~on the~~to ~~change during~~ the ~~year~~income ~~in the deferred~~ tax ~~liability or asset established~~ ~~for~~that ~~the~~would ~~expected~~have ~~future~~been ~~tax~~applicable ~~consequences~~on ofa ~~differences~~separate inreturn ~~the~~basis. ~~financial~~The consolidated ~~reporting~~provision ~~and~~for ~~tax~~income ~~bases~~taxes ofincludes ~~assets~~Federal and ~~liabilities. The~~State ~~differences~~income ~~relate~~taxes ~~principally to premises~~ and ~~equipment,~~is based ~~unrealized~~on ~~gains~~pretax ~~and~~income ~~losses~~reported onin ~~investment~~the ~~securities~~financial ~~available~~statements, ~~for~~adjusted ~~sale,~~by ~~and~~nontax items ~~the~~in ~~allowance~~computing ~~for~~income ~~loan~~taxes ~~losses~~payable.

JThe Company uses the liability method for computing deferred income taxes. ~~Per~~ Under the ~~Share~~liability method, deferred income taxes are based on the change during the ~~Information:~~year in the deferred tax liability or asset established for the expected future tax consequences of differences in the financial reporting and tax bases of assets and liabilities. The differences relate principally to premises and equipment, unrealized gains and losses on investment securities available for sale, and the allowance for loan losses.

~~Primary earnings per~~J. Per ~~share~~Share are computed by dividing net income by the weighted average number of shares of common stock outstanding and the number of shares of common stock that would be assumed outstanding under the treasury-stock method.Information:

~~K. Comprehensive~~Primary ~~Income:~~earnings per share are computed by dividing net income by the weighted average number of shares of common stock outstanding and the number of shares of common stock that would be assumed outstanding under the treasury-stock method.

K. Comprehensive ~~income~~ consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains and losses on securities available for sale, which are also recognized as a separate component of equity. The accounting standard that requires reporting comprehensive income first applies for 2000, with prior information restated to be comparable.Income:

LComprehensive income consists of net income and other comprehensive income. ~~New~~ Other comprehensive ~~Accounting~~income includes unrealized gains and losses on securities ~~Pronouncements:~~available for sale, which are also recognized as a separate component of equity. The accounting standard that requires reporting comprehensive income first applies for 2000, with prior information restated to be comparable.

Beginning January 1, 2000, a new accounting standard will require all derivatives to be recorded at fair value. Unless designated as hedges, changes in these fair values will be recorded in the income statement. Fair value changes involving hedges will generally be recorded by offsetting gains and losses on the hedge and on the hedged item, even if the fair value of the hedged item is not otherwise recorded. This is not expected to have a material effect, but the effect will depend on derivative holdings when this standard applies.44

422. Investment Securities:

~~2. Investment~~The carrying amounts of investment in ~~Securities~~securities as shown in the consolidated balance sheets of the bank and their approximate full values at December 31 were as follows:

The carrying amounts of investment in securities as shown in the consolidated balance sheets of the bank and their approximate full values at December 31 were as follows:

	Cost		Gains		Loss		Value

VALUES FOR THE YEAR ENDED DECEMBER 31, 2003:

Securities Available for Sale
Federal Agency Securities	$	38,509,935	$	1,225	$	0	$	38,511,160
U.S. Treasury Securities	9,010,912		18,620		0		9,029,531
Tax Exempt Federal Reserve Stock	81,000		0		0		81,000
Equity Securities	263,152		88,135		0		351,287
	$	47,864,999	$	107,979	$	0	$	47,972,978

VALUES FOR THE YEAR ENDED DECEMBER 31, 2002:

Securities Available for Sale
U.S. Treasury Securities	$	3,971,774	$	103,226	$	0	$	4,075,000
Federal Agency Securities	36,532,502		284,636		18		36,817,120
Tax Exempt Federal Reserve Stock	81,000		$	0	81,000
Equity Securities	263,152		$	68,866	0		332,018
	$	40,848,428	$	456,728	$	18	$	41,305,138

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Loss		Fair Value
VALUES FOR THE YEAR ENDED DECEMBER 31, 2002:
Securities Available for Sale
Federal Agency Securities	$	36,532,502	$	284,636	$	18	$	36,817,120
U.S. Treasury Securities	3,971,774		$	103,226	0		4,075,000
Tax Exempt Federal Reserve Stock	81,000		$	0	81,000
Equity Securities	263,152		$	68,866	0		332,018
	$	40,848,428	$	456,728	$	18	$	41,305,138
VALUES FOR THE YEAR ENDED DECEMBER 31, 2001
Securities Available for Sale
U.S. Treasury Securities	$	3,490,661	0		1,131		$	3,489,530
Federal Agency Securities	32,553,208		62,594		0		32,615,802
Equity Securities	250,000		0		0		250,000
	$	36,293,869	$	62,594	$	1,131	$	36,355,332

Federal Reserve Bank stock is an equity security that is included in securities available for sale in the accompanying consolidated financial statement. Such securities are carried at cost, since they may only be sold back to the issuer or another member at par value.

Federal Reserve Bank stock is an equity security which is included in securities available for sale in the accompanying consolidated financial statement. Such securities are carried at cost, since they may only be sold back to the issuer or another member at par value.45

43The proceeds from sales, calls and maturities of securities, and the related gross gain and losses realized are as follows:

The proceeds from sales, calls and maturities of securities, and the related gross gain and losses realized are as follows:

	Proceeds From				Gross Realized
Year Ended December 31,	Sales		Calls and Maturities		Gain		Losses

2003 Available for Sale	$	35,831,883	$	20,000,000	$	147	$	0

2002 Available for Sale	$	0	$	19,925,000	$	0	$	0

2001 Available for Sale	$	0

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